Greece?s decision to ban short selling of securities won?t stop stocks from falling more than shares in other European countries, if history is any guide.
Greece?s ATHEX Index fared worse than the Stoxx Europe 600 Index when the Mediterranean country?s securities regulator banned short selling between April 29, 2010, and September 1 that year. The Greek gauge fell 14 percent over the period of the ban, while the broader measure lost 1.4 percent. In a short sale, investors bet on declines in securities by borrowing stock to sell on the expectation it can be purchased at a lower price before handing it back.
Greece?s securities regulator yesterday said it will ban short selling on the Athens exchange as of today, for a period of two months, according to an e-mailed statement from the Athens-based Hellenic Capital Markets Commission. The group cited ?extraordinary market conditions prevailing in Greece? as its reason for the prohibition. The European Securities and Markets Authority said that other national regulators had no plans to adopt similar measures.
?Banning short selling has been long proved to not work and remains a distinct threat to the free-market principle,? said Joshua Raymond, a market strategist at City Index Ltd. in London. ?The market will always feel that it determines rates and prices and any ban of what actions investors can take merely postpones them from doing the inevitable.?
European leaders agreed last month to a financing plan for Greece that includes 50 billion euros ($71 billion) of contributions from private investors through bond exchanges and buybacks. On June 30, Greek lawmakers approved 78 billion euros of tax increases and asset sales. The country has been struggling with one of the highest debt burdens on the continent. Last month, European leaders agreed on a second bailout for the nation in a bid to end the region?s debt crisis. [Bloomberg]