Four EU nations ban short-selling on banking stocks

French banking shares have been most affected by the recent market turbulence

France, Italy, Spain and Belgium have banned short-selling of the shares of banks and other financial companies.

It follows sharp gains and losses in bank stocks in recent
days, especially in France, on the level of their exposure to eurozone
government debt.




Societe Generale has been the worst affected by the
volatility, being forced on Wednesday to deny that its financial
stability was at risk.




In short-selling, traders profit from bets on the fall in a share price.




The practice has been blamed for increasing recent market instability.




Short-sellers usually borrow shares or bonds, sell them, then buy them back when the stock falls - pocketing the difference.




"Naked" short-selling is when a trader sells financial instruments he has not yet borrowed.




All forms of short-selling are included in the ban.



'Irrational fears'

The announcement was made both by the European Union's markets supervisor, ESMA, and the four national markets authorities.




France's agency, the AMF, said it was banning short-selling
on 11 banking and insurance stocks for 15 days, including France's three
largest banks, Societe Generale, BNP Paribas and Credit Agricole.

In Thursday trading on Societe
Generale's share price started up 8%, before falling by the same amount,
and then recovering to finish 3% higher.

Societe Generale chief executive Frederic Oudea said the speculation about his bank was "absolutely rubbish".




Mr Oudea also spoke to France Info radio. "People are
scared," he said, "so the tiniest information touches off irrational
fears. To our clients, we have to tell them that these rumours are
baseless and that they can have confidence in Societe Generale."




Spain's market regulator, the CNMV, also said its ban would
be in place for 15 days. It added that it could also extend the period
if required.




"The situation of extreme volatility in European stock
markets, especially for shares of financial entities, is clearly
affecting the stability of the markets and can disrupt their ordered
functioning," it said in a statement.




Spanish banks included in the ban are Santander, BBVA, Sabadell, Bankinter, Banco Popular, and Banca Civica.




Greece banned short-selling on Monday.




Investors are concerned about European banks, because of
their large exposure to the government debt of highly indebted eurozone
countries such as Greece.




The fear is that the banks will have to write-down the value of their holdings in the government bonds of these nations.




French banks are the most exposed, hence they have been the worst affected by the market turmoil of recent days.




French President Nicolas Sarkozy and German Chancellor Angela
Merkel are meeting on Tuesday to discuss solutions to Europe's
financial difficulties.