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Short selling involves an investor borrowing a security and selling it on the open market, with a view to buying it back later at a reduced price, hence capitalization on the depreciation of a stock’s value. It is common, albeit controversial, practice at times of great market distress.
The pan-European Stoxx 600 index has plunged more than 34% in the last month, including notching its worst one-day percentage decline in history last Thursday, as travel and industrial shutdowns grind the continent to a halt in a bid to curtail the rapid spread of the virus.
France’s Autorité des Marchés Financiers banned short selling in 92 shares, those most impacted during Monday’s sell-off, until the end of Tuesday’s trading session.
In Italy, the country most impacted by the outbreak on the continent, regulator Consob announced a 24-hour halt to short trades on 20 shares, while Spain’s CNMV regulator has banned transactions in Spanish shares involving the establishment or increase of net short positions for a month as of Tuesday.
Both Italy’s blue-chip FTSE MIB and Spain’s IBEX have fallen by around 40% over the past month, with the two countries reporting 27,980 and 11,279 cases of
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“ESMA considers that the current circumstances constitute a serious threat to market confidence in the EU, and that the proposed measure is appropriate and proportionate to address the current threat level to EU financial markets,” the regulator said in a statement Monday.
The U.K.’s Financial Conduct Authority (FCA) also issued a temporary ban on the shorting of 37 Belgian and Italian stocks following moves from respective regulators in both countries. Belgian regulator the Financial Services and Markets Authority (FSMA) announced a ban on shorts for a basket of stocks during Tuesday’s trade in order to avoid what it termed a “disorderly decline” in