France, Italy, Spain and Belgium prohibited short-selling securities of banks and other financial institutions on markets. This is a measure of the local authorities to prevent stock indices from abrupt falling, BBC News informs.
Short-selling brings profit to traders if the stock price is declining. They borrow stocks from a broker only to sell it soon with an obligation to buy the securities out later. If stocks are declining, traders get the difference between the price of selling securities and that of buying. Short selling is known as a form of speculative trading.
Reuters says that Spain, France and Belgium banned short selling for a little more than two weeks. The details of the solution brought by the Italian regulator have not yet been released. The agency also informs that the measures taken by the authorities will hardly calm investors down: according to its forecasts, stocks selling may well continue. Nevertheless, Agence France-Presse informs that Germany already put forward the idea of imposing pan-European prohibition on short selling.
During the current week, all the global markets including those of Europe have been demonstrating high volatility: stock indices keep on mixing. At times they grow by 3-4%, then fall by 3-4% and so on. This tendency is related to the fact that some investors cannot fully understand how considerably the world economy may be influenced by lower credit rating of the USA.
Moreover, most investors have been concerned about the debt crisis situation in Europe. In the beginning of August they were afraid that the crisis might devour Spain and Italy, but now the market is being ruffled by the rumours that rating agencies can downgrade France’s rating.
The market has been under nervous pressure of the decision of Europe to rescue Greece from the economic crisis not only by government measures, but also by means of private investors (first of all, European banks that invested in Greece’s obligations). Investors suppose it may well have negative influence on many large-scale banks, particularly Societe Generale.
Trades of this bank securities have been especially volatile: since August 10 they have lost 15%.