Germany Short-Selling Ban

Germany Short-Selling Ban

Germany Bans Short Selling, Angers Hedge Funds

Germany has instituted a controversial ban on naked short selling, hoping to prevent speculators from disturbing the financial markets.  Germany has banned naked short selling in some stocks, euro-dominated bonds, as well as credit default swaps--likely a reaction to the role of CDC's in Greece's debt crisis.
But funds say they make markets more efficient and the ban could create more problems.
"I think it's ridiculous," said Pedro de Noronha, managing partner at hedge fund firm Noster Capital, which invests in credit default swaps. "All it proves is how scary it is to have people who are unsophisticated in ... financial markets imposing regulations on products they don't understand."
The move bans naked shorts in some financial stocks and euro-denominated bonds, as well as related transactions in credit default swaps (CDS), which attracted controversy during Greece's debt crisis, although funds say they accounted for a fifth or less of activity in Greek sovereign CDS.
David Stewart, chief executive of high-profile London-based hedge fund firm Odey Asset Management, warned the move could create, rather than remove, dislocation in financial markets.
"This could be very frightening for everyone. Once you start interfering with the markets it leads to dislocation," he said. "If there's just soundbite politics ... and no real co-ordination it's very unsettling." Source

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