With financial regulators trying to mitigate the risks that have arisen due to the coronavirus situation, the European Securities and Markets Authority (ESMA) has issued a favorable opinion of France’s decision to implement an emergency short selling prohibition this week.
In particular, the Autorité des marchés financiers (AMF) of France has implemented a short-selling prohibition on all transactions which might constitute or increase net short positions on shares admitted to trading on French trading venues for a one month period.
To put it simply, short selling is a trading strategy that allows traders to take advantage of markets that are falling in price. To short-sell means that you are selling a borrowed asset in the hope that its price will go down, and once it does, you can buy it back later for a profit.
The ban commenced on the 18th of March, 2020, at midnight and will expire following the close of the trading session on the 16th of April, 2020. However, the prohibition may be lifted earlier, depending on market conditions.
According to the European regulator, the ban from the AMF applies to transactions executed both on a trading venue or over the counter (OTC), and people both within and outside of the European Union are subject to the measures.
“ESMA considers that the proposed measure is justified by current adverse events or developments which constitute a serious threat to market confidence and financial stability in France and that it is appropriate and proportionate to address the existing threat to market confidence in the French market,” the authority said in its statement on Wednesday.
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ESMA issues positive opinion on CNMV’s measures
In addition to delivering a position opinion on the AMF’s measures, the European agency has also issued a positive opinion on a short selling prohibition which has been implemented by the Spanish regulator the Comisión Nacional del Mercado de Valores (CNMV), which is similar to that put in place by the French watchdog.
The measures came into effect this week on the 17th of March, 2020, before the opening of the trading session and will expire after the close of the trading session of the17th of April 2020.
Global response by regulators
European regulators aren’t alone in their efforts to try and reduce some of the risks that have come with higher trading volumes and increased volatility as traders react to the COVID-19 pandemic.
As Finance Magnates reported, over in Australia, the Australian Securities and Investments Commission (ASIC) imposed emergency trading measures earlier in the week. Namely, equity market participants have been told to limit the number of trades executed each day until further notice.
Under the watchdog’s directions, firms need to reduce their number of executed trades by up to 25 percent from the levels executed on Friday. Therefore, high volume participants and their clients will need to actively manage their volumes.