European regulators are abandoning their restrictions on short-selling that were initially introduced in response to the market turmoil caused by the outbreak of Covid-19.
Regulators in Austria, Belgium, France, Greece and Spain all announced that they will not be renewing bans on short-selling activity, and Italian regulators have terminated their short-selling curbs, which were scheduled to run until June 18.
The European Securities and Markets Authority (ESMA), which helped coordinate the initial restrictions in various European markets, also helped arrange the cessation of the emergency restrictions.
The beefed up requirements for reporting net short positions that were introduced by ESMA in mid-March remain in effect until June 16, the regulator said.
Industry trade group the World Federation of Exchanges (WFE) said that it welcomes the decision to end the short-selling bans in Europe, noting that its research has found that these sorts of curbs hamper market quality and can exacerbate volatility.
“It is industry experience that short selling bans do not have a positive effect on market activity or price levels,” said Nandini Sukumar, CEO of the WFE.
“Banning short-selling interferes with price formation, thereby increasing uncertainty. That can only artificially amplify volatility and probability of default, the opposite effect to that claimed, and hampers the ability of markets to serve the real economy,” she added.
In Canada, securities regulators resisted calls to intervene and limit short selling activity amid the market turmoil created by the Covid-19 pandemic, citing similar concerns about the potential unintended consequences.
“We welcome the decision to allow regulated markets, that have demonstrated they are resilient and capable of operating as they should in a crisis, to now resume normal operation. We look forward to supporting Europe’s measures to rebuild the economy,” Sukumar said.