France backs down on short-selling loophole

French regulators have failed in an attempt to extend the short-selling ban to major European stock markets, so investors can continue betting on further falls in financial stocks, the Financial Times reports.

Traders are unsure whether they can roll over existing short positions on key European indices.

There is particular confusion around the status of equity index derivatives, which consist of baskets of stocks including bank shares, and which are operated from countries not covered by the short-selling ban.

The Autorité des Marchés Financiers (AMF), the French financial regulator, had hoped to impose a ban on traders rolling over existing short positions on indices operated by Stoxx.

This push was designed to prevent traders and investors using indices to circumvent the short-selling bans introduced last week in France, Italy, Spain and Belgium.

However, traders will now be able to roll over existing short positions on European indices – although not be able to take out new short bets, according to the FT.

The AMF admitted on Thursday it had “adjusted” its position and said investors holding a net short in an index basket would be allowed to roll forward their positions, “even if such a rolling results in the creation of a net short position with a further expiry.”

The change in stance by AMF, amid slumping stock markets, effectively reversed its earlier position that had banned an extension to contracts of futures and options – so-called “rolling over” – that are due to expire on Friday.

However, France’s regulator made clear that investors could not increase their short positions. The AMF has been keen to ensure that traders were not able to bypass the ban by creating synthetic shorts.

The climbdown came as European banking stocks, including Société Générale, BNP Paribas and UniCredit fell sharply amid fears over slowing global economic growth and a double dip recession in Europe and further afield.


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