Germany moves to clamp down on speculative trading

19th May 2010, Comments 0 comments

Germany moved Tuesday to clamp down on speculative trading as it sought to ease market volatility that many believe has helped cause the current crisis hitting Greece and the eurozone.

Germany's securities market regulator Bafin immediately banned naked short sales of certain securities, in particular the government bonds of the 16 countries that use the euro.

"The extraordinary volatility of the bonds of eurozone states" justified the ban on short selling said Bafin.

Given the current market conditions, with investors fearing possible contagion across Europe from the Greek debt crisis, "new excessive price variations could harm many on the financial markets and threaten the stability of the whole financial system," said Bafin.

In addition to eurozone government bonds, the ban also applies to certain credit default swaps and on the shares of 10 financial institutions, and will be in force until March 31 next year.

Naked short selling is when an investor sells on the market a security they don't own and haven't even borrowed, hoping to be able to buy it later in the day at a lower price, thereby earning a profit.

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.

But the German ban led to further pressure on the euro, however, driving it to a fresh four-year low, below the sensitive level of 1.22 US dollars, during late trading Tuesday in New York, traders said.

Greek officials have repeatedly blamed speculative trading as being a major factor behind the country's debt problems developing into a crisis, eventually forcing the country to turn to the EU and IMF for a 110-billion-euro (134-billion-dollar) bailout at the beginning of the month.

When that failed to calm investors' fears that the Greek crisis could spread to other heavily-indebted eurozone members, the EU and IMF were forced to quickly cobble together a 750-billion-euro fund.

EU finance ministers also moved forward Tuesday on imposing "strict" new curbs on the trillion-dollar hedge fund industry, which has been widely blamed for speculative financial attacks, in particular on currencies.

Meeting in Brussels, EU finance ministers "agreed a mandate for negotiations with the European parliament" to standardise hedge fund regulation across the 27-nation bloc.

New laws covering alternative investment funds, which also affects huge private equity and real estate funds, would introduce harmonised EU-wide rules based on "compliance with strict requirements."

German Chancellor Angela Merkel also said Tuesday she would push for an international tax on financial markets during a summit of G20 leaders next month.

"Germany will defend (the idea of) a tax on financial markets at the G20," she said during a joint press conference with her Austrian counterpart Werner Faymann.

European Commission chief Jose Manuel Barroso urged EU leaders in a letter last week to take up the cause of an international tax on financial institutions at a G20 summit on June 26 and 27 in Toronto.

Finance ministers from the G20 group of leading developed and emerging economies last month asked the International Monetary Fund to weigh levying taxes on big banks to help cut risk and pay, thus avoiding possible financial failures.

While Washington and Europe have pushed for the financial sector tax, Canada has led opposition to the idea, refusing to impose a charge on its institutions because its banks largely steered clear of crisis thanks to prudent risk taking.

IMF experts say the taxes must be coherent among all G20 members to prevent banks from avoiding them by moving operations to countries where the levies were not applied.

© 2010 AFP

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