Germany defends ban on naked short selling

26th May 2010, Comments 0 comments

Germany defended itself Wednesday against international criticism of last week's ban on naked short selling, saying it wanted a "signal to markets" it will not tolerate "excessive speculation."

"We announced our intention to introduce the ban at the start of the year, and if I remember correctly, this got a positive reception," finance ministry spokesman Michael Offer told a regular government news conference.

"The fact that we acted sooner was because of market volatility in the wake of the Greek (debt) crisis and the euro crisis. Where we are able to act nationally, we will do so."

He added: "I do not see that we acted in an uncoordinated manner. The measures ... must be seen in the context of a package of decisions taken by the Ecofin (EU finance ministers) to ensure stability in the entire eurozone."

Germany's financial regulator BaFin last week unveiled a ban on naked short-selling of certain stocks, eurozone government bonds and credit default swaps, a kind of protection against default by state borrowers.

Naked short selling is when an investor sells on the market a stock or other asset they do not own or have not even borrowed, aiming to buy it back later at a lower price to pocket a profit. It can create highly damaging volatility on financial markets.

But Berlin came under fire for the move, with critics saying that Germany had failed to inform properly its partners in the European Union or in the Group of 20 top global economies beforehand. It also rocked financial markets.

On Tuesday, leaked documents from the finance ministry showed that Germany wanted to go further, extending the ban to cover all shares listed on its stock exchanges and certain other financial instruments.

The cabinet of Chancellor Angela Merkel, who will attend a G20 summit in Toronto on June 26-27 set to be dominated by financial regulation, aims to examine the additional measures next week.

"We want to deal with other points with this bill, further bans that so far have not been imposed by BaFin," Offer said.

"In doing this, we want to send out a clear signal to the markets that we want to act where we are able to, where we are able to act on a national basis, in order to tackle excessive speculation, speculation in general ... and to calm markets and to boost confidence in capital markets."

US Treasury Secretary Timothy Geithner, in London on Wednesday, was due to meet the head of the European Central Bank in Frankfurt later in the day and German Finance Minister Wolfgang Schaeuble in Berlin on Thursday, to prepare for the G20 summit.

© 2010 AFP

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