Regarding the announcement earlier today that the German government will ban naked short-selling, the Financial Times’s Money Supply blog has posted a translation of the official announcement by Germany’s Federal Financial Supervisory Authority.
The note says Germany has banned naked short sales of “debt securities issued by eurozone countries” as well as credit default swaps (CDS) on bonds of eurozone countries where the CDS “does not serve to hedge against default risk.”
The ban also is in effect for select German equities, including the ordinary shares of Deutsche Bank (DB). The ban is in effect for a year, until March 31st of 2011.
And the agency defends the move citing the extreme price moves that can be caused by naked short-selling:
BaFin justifies these steps given extraordinary volatility in debt securities issued by eurozone countries. Furthermore, credit default swaps on the credit default risk of several countries in the eurozone has increased significantly. Against this background, massive short sales of the affected debt securities and the conclusion of naked credit default risk on eurozone countries had led to excessive price shifts, which could have led to significant disadvantages for financial markets and have threatened the stability of the entire financial system.
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