Germany’s ban on naked short selling of European government bonds, sovereign CDS and German financial stocks provoked consternation in the European market yesterday (May 19).
The ban imposed by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin), the financial regulator, is set to last until March 31 next year.
Thomas Pirzer, an associate at European consultancy Alpheus Solutions in Frankfurt, said the move had been met with real alarm in Germany, and that it was liable to drive hedgers out of the equity market.
“What we’re hearing from traders is that if they can’t short now, they won’t be a long buyer,” he said. “They will have no incentive to stay in the market.” He said a serious fall in the level of the Dax index was a real possibility.
Markets fell across Europe following the news, with the Dax closing down 2.7% at 5,989 and the FTSE down...