Data Explorers: No unusual shorting in Spain, Italy

Investors were taking no greater short interest in the stocks affected by regulatory bans in Italy and Spain yesterday than they had, on average, since July last year, according to analysis by Data Explorers.

The short selling monitors found the percentage of the affected stocks out on loan – a fair proxy for short selling activity – had actually fallen since early June, from about 1.1%, though ticked up slightly over recent weeks, to about 0.8%.
It was only slightly higher than the short interest in Italian equity generally, which is around 0.6%.

For the Spanish stocks affected by the shorting veto, short interest is around its lowest point since May at about 0.7%, and is actually lower than the proportion of the whole Spanish equity market out on loan, above 1.2%.

The ban in Spain covers all stocks for three months, while Italy’s covers 29 financials, and lasts one week. Short selling involves borrowing stocks and selling them into the market in the hope of buying them back more cheaply in future, returning them to the lender and pocketing the difference in price.

Alex Brog, an analyst at Markit Securities Finance, said “the newly restricted financial names see no more short interest than the average across their respective markets”.

He said the proportion of the affected stocks on loan “is below the market average in Spain and marginally above the market average in Italy [and] this has been the case throughout most of this calendar year”.

The proportions of affected stocks being borrowed are each far lower than the 2.6% and 1.9% of the Stoxx 600 and its banks sector out on loan.

The proportions are also, interestingly, far lower than the nearly 5% of CAC constituents being borrowed from French shareholders, and short interest in French stocks was up by over one third this year as short sellers badgered the market. In Cac stocks short interest grew by 43%.

Short sellers have got the market largely right as France has relinquished all of the 10% gain of the first quarter, to trade less than 0.5% higher than it started the year. Short interest stayed roughly flat as it rose, but picked up in March.
Peugeot recently had about 12% of its stock being borrowed,and short interest was up 87% this year.

An increased demand to borrow Spain’s Banco Santander and BBVA recently have been related to dividend schedules, he added.


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