ESMA Extends Short Selling Ban on Greek Equity Markets

The measure will remain in place for another week as the disruption of the financial system in the country continues

An official announcement made by the European Securities and Markets Authority (ESMA) has confirmed that the short selling ban implemented in Greece as the country introduced capital controls, will remain in place for another week.

The prohibition of short selling activities were imposed on the 30th of June by the Hellenic Capital Market Commission (HMCM). The measure is aimed at reducing the speculative pressure on local indices and to reduce volatility of the stock market. This is the second extension of the short sale ban last week after the HMCM extended the initial term by one week.

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Similar measures are typically taken in periods of extreme market volatility. Back in 2008, a number of stock markets across the globe were hit by a similar ban, whilst the European sovereign debt crisis escalation in 2011 triggered a series of short sale bans, especially in the financial sector.

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In 2008, fearing that selling stocks short was driving increased market turmoil, U.S. regulators officially forbade short selling of financial stocks. A research study by the New York Fed reveals that the effects of the suspension were muted.

In fact, in the aftermath of the ban of short selling, financial stocks tumbled and only stabilized after the ban was lifted.

The New York Fed’s study has found that on a number of occasions, stocks which were subjected to short selling restrictions underperform against the unrestricted shares.

The new extension to the ban is set to start at 00:00:01 hours (CET) on July 14, 2015 and will remain active until 24:00:00 (CET) on July 20th, 2015.

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