France prolongs ban on short selling bank shares

10th November 2011, Comments 0 comments

France prolonged a ban on short selling shares in 10 key financial institutions for three more months on Thursday in order to prevent harmful speculation, the finance ministry said.

France put the ban on traders betting against these stocks in place on August 11 as shares in its major banks -- which are seen as overexposed to risky Greek and Italian debt -- see-sawed wildly.

Short selling is defined as when a trader borrows shares that he expects to see fall, sell them, then buys more when the price is lower to allow him to take a profit before settling the loan.

It is legal under normal circumstances, but France's AMF market regulator feared that the practice was dangerously undermining banking shares by exagerrating the pressure already generated by the debt crisis.

Under French trading law, Finance Minister Francois Baroin's assent was required for the AMF to prolong its ban, which would have expired on Friday.

Since August, the debt crisis has if anything only worsened, with Italy now squarely in the market's firing line and Greece struggling to form a unity government to push through a partial default package.

© 2011 AFP

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