July 23 (Bloomberg) -- Spain and Italy reinstated a short-sale ban on stocks as bank shares plunged to record lows, bond yields rose and the euro traded below its lifetime average against the dollar on concern the debt crisis is growing.
Spain’s CNMV market regulator banned the creation of negative bets using all equity securities through shares, derivatives and over-the-counter instruments for three months. Italy’s Consob prohibited the practice on 29 banking and insurance shares for one week, citing “grave tensions” in financial markets.
Today’s move echoes decisions in August last year by the two nations plus France and Belgium after European banks hit their lowest levels since the credit crisis of 2008 and 2009. Most bank stocks extended their decline once the bans were lifted.
“I don’t think it is particularly smart, but it is to be expected,” said Owen Callan, senior dealer at Danske Bank A/S in Dublin, in a phone interview. “Last time around it didn’t really have any lasting impact. This is trying to avert hedge- fund speculation, but the selloff is not about speculation. This is not hedge funds trying to bring down the market.”
Short-sellers sell borrowed shares with plans to buy them back later at a lower price, a practice some politicians and investors blame for roiling markets.
Government bond yields in the U.S., U.K. and Germany fell to records, while Spain’s IBEX 35 Index headed for its worst two-day decline since 2008 as concern grew countries in Europe may need further assistance to cope with their debt levels. The prospect of more Spanish regional governments following Valencia last week in asking for aid sent the cost of insuring the nation’s debt to a record.
Both countries’ prohibitions exclude market-making activities.
The European Securities and Markets Authority “is aware” of the bans, David Cliffe, an ESMA spokesman, said in a telephone interview today. ESMA was set up last year to harmonize the implementation of market rules across the European Union.
Veerle De Schryver, a spokeswoman at Belgium’s markets regulator in Brussels, said the agency has no plans to introduce a new ban on short selling. Spokespeople at France’s AMF regulator weren’t immediately available to comment.