Short selling
May 26, 2010
A draft document from the German finance ministry sets out plans to extend last week's short selling ban - which covers top financial firms, euro government bonds and related credit default swaps - to include all German-listed shares.
Short selling is the business of borrowing securities to sell and subsequently buy back at a profit once their price has fallen. Naked short-sellers, however, do this without actually borrowing the shares they are selling, and thereby trade at a greater risk.
German Finance Minister Wolfgang Schaeuble is deeply opposed to naked short selling, which he says undermines market transparency.
Under the terms of Tuesday's draft document, the "Financial Markets Stability Improvement Bill", investors would have to inform BaFin regulators about any short sale deals they were involved in. Furthermore any major covered short trades in German stocks or equivalent financial instruments would have to be made public.
"Naked short selling of stocks and the debt of eurozone states that are listed on a domestic exchange in a regulated market place will be forbidden," the draft proposal said.
Schaeuble's aides told reporters that the minister was hoping to see the bill approved at the start of next month.
Safety in numbers
But Germany's move to clamp down on short selling has been criticized for being largely symbolic by some analysts, who claim the decision was taken without first informing other EU member states or partners in the Group of 20 (G-20).
They say that in acting unilaterally - only Austria has followed Berlin's lead on the issue - Germany may to all intents and purposes be imposing an ineffectual ban.
Christoph Schmidt, head of Germany's RWI economics institute told the Reuters news agency that Berlin was taking "an isolated step in a globalized world," and that as such it could "simply have no impact."
Such sentiment was widespread among traders, who said Germany would need to work with the G-20 and the EU to give the ban credibility.
tkw/AFP/reuters/dpa
Editor: Sam Edmonds