Netherlands joins short selling ban

Netherlands joins short selling ban

22nd September 2008, Comments 0 comments

Netherlands joins short selling ban

Dutch Finance Minister Wouter Bos has banned the 'naked short selling' of shares in the Netherlands as of today. The move follows a similar ban introduced in recent days in the United States and Britain. It is a temporary measure, and will apply for three months.
 
            
 
Short selling is considered one of the factors responsible for the current financial crisis. It involves selling borrowed shares with the intention of buying them back a short time later at a lower price, and pocketing the price difference. Short selling itself will still be permitted under the new regulations, but the 'naked' version of the practice will now be banned. Here the short seller agrees to sell the shares without even borrowing them in the first place, effectively selling shares he does not own. Because the profit depends on the share price falling, sometimes speculators spread negative rumours about a company in the hope of encouraging shareholders to sell. 
 
           Wouter Bos 
                               Finance Minister Wouter Bos 

Recently Belgian-Dutch banking group Fortis became the victim of such rumours, reminiscent of the situation faced by Bear Stearns, HBOS and the ill-fated Lehman Brothers. Stock market players who stood to gain from a drop in Fortis' share price circulated rumours that Fortis faced solvency problems. In the current edgy climate this was enough to spark off a spate of selling, making the share price plummet. This could have prompted other banks to call in loans and nervous customers to withdraw savings. Fortunately for Fortis their shares rallied when the US announced a financial rescue plan to combat the effects of the credit crisis.

In an interview on Saturday Fortis boss Herman Verwilst reassured its customers that their savings were safe.

The Dutch Investors' Association says that while Wouter Bos's ban on naked short-selling may have a positive effect in the short term, it is not a structural solution. Investors are inventive, and will always come up with a way to make money from falling share prices. The association is calling for a clampdown on people who spread false rumours to manipulate the market.
 
22 September 2008
 
Radio Netherlands 

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