France's Lagarde cautious on German trading clamp
French Economy Minister Christine Lagarde voiced reservations on Wednesday about a unilateral German move to curb speculative trade in EU government bonds, saying other states should have been consulted first.
The German market regulator announced the ban on "naked short-selling" of government bonds overnight, hoping to steady the markets and euro but instead plunging them into fresh turmoil as investors took positions against stocks and the single currency.
"When it comes to liquidity, it is not unhelpful (that trade in government securities) can continue without naked short selling being banned," Lagarde told a press conference.
At the same time, Lagarde, who was an eminent lawyer in international business and finance before becoming a minister, expressed regret that "states affected by the measure" had not been consulted beforehand.
Germany's securities market regulator Bafin banned naked short sales of certain securities, in particular the government bonds of the 16 countries that use the euro, from midnight Tuesday (2200 GMT).
Naked short selling is when investors sell on the market a security they do not own and have not even borrowed, hoping to be able to buy it later in the day at a lower price, thereby earning a profit.
"The extraordinary volatility of the bonds of eurozone states" justified the ban on short selling Bafin said in a statement.
Given current market conditions, "new excessive price variations could harm many on the financial markets and threaten the stability of the whole financial system," it said.
In addition to eurozone government bonds, the ban also applies to certain credit default swaps -- which provide cover against default -- and on the shares of 10 financial institutions. They will be in force until March 31 2011.
Short selling has been repeatedly implicated in quick drops in markets and its use has been limited or banned during the financial crisis on major exchanges over the past two years.
Lagarde on Wednesday called on the French markets regulator (AMF) to seek a view on the German ban from the European markets surpervisory group.
Lagarde noted that a French ban on short-selling of bank shares adotped as the global financial crisis gathered pace in September 2008 remained in place.
© 2010 AFP