Markets seemed to have regained some of their appetite for risk on Friday as European shares rose. Part of the reason was a ban on the short selling of stocks put in place Thursday night by some euro zone countries.
France, Italy, Spain, and Belgium acted to prevent short sales of bank stocks effective Friday. There is already such a temporary ban in place in Greece and Turkey.
A statement from the European Securities and Markets Authority (ESMA) said in part regarding the action, “Today some authorities have decided to impose or extend existing short-selling bans in their respective countries. They have done so either to restrict the benefits that can be achieved from spreading false rumors or to achieve a regulatory level playing field, given the close interlinkage between some E.U. markets.”
French banks are taking a further step by looking into legal action concerning rumors pervading the markets about their creditworthiness, according to the French Banking Federation. Reuters reported that in a statement, the Federation said, “Given the unfounded rumors which have persistently circulated on the markets, the French banks are examining other options available to them, including legal.”
The ESMA statement also spoke about the use of rumors to move markets, referring to the Market Abuse Directive (MAD) that forbids the use of misinformation in such a way and saying that action will be taken against the use of “rumors and false or misleading news.”
The use of a short-selling ban puts pressure on the U.S., according to the Times, and drew criticism from numerous arenas. If investors cannot short sell bank stocks in Europe, but have a negative outlook on them, they may instead short American banks. Yet financial historians declared that such bans, imposed in 2008, did not work and were more motivated by politics than effective market policies.
Kenneth S. Rogoff, a professor of economics at Harvard, said in the report that the ban “really smacks of desperation.”