(March 13, 2012) — Most European financial stock prices have fallen since regulators removed bans on the practice in February, despite short-sellers not flooding back to the market, data has shown.
More than half of the 59 European financial stocks that were protected by a short-selling ban implemented by French, Italian, Spanish, and Belgian regulators last year saw their share price plummet once the restriction was removed, according to market monitor DataExplorers.
This was despite only a small level of short-sellers rushing to take positions against the companies.
All four Belgian financial stocks fell, with an average drop of 6.41% against the all-share falling 0.80% in the same period. Here, the average short-position against the stocks fell by 0.03%.
In Spain 12 of the 15 financial stocks’ price fell – by an average 8.56% – as the level of shorting only rose by 0.42%, just above the average for the country’s entire listings.
Last summer as banking stocks were being hit by investor confidence in their holdings of Greek debt – which looked likely to default – regulators across the continent brought in bans to try and prevent the companies crashing.
Many argued the move would not prevent the stocks falling as it was a lack of confidence in the businesses, rather than the act of shorting, that was driving prices down.
Italian and French financial stocks saw an average increase in share price of 0.07% and 2.37% respectively since the ban was lifted. However, 13 of 29 Italian financial stocks and four of 11 French firms saw a drop in their price.
The average shorting of Italian financial stocks increased very slightly, whereas the short position on French financial companies was reduced. The average short position against the rest of the French markets increased in the same period.
In some countries, disclosure of large short positions was preferred over bans – last month research claimed a herding instinct amongst fund managers could exacerbate the level of shorting.