Spain bans short-selling of shares as markets fall


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Spain has banned short-selling of shares to try to limit price moves after markets fell sharply on fears the country may need a full bailout.

Spain's market regulator blocked the practice for three months to try to restore order after sharp falls in bonds and shares.

"Short-selling" is a way that traders can make money by betting on falling share prices.

Italy has also banned short-selling of financial stocks for one week.

'Extreme volatility'

Short-selling is a technique used by investors who think the price of an asset, such as shares, will fall.

They borrow the asset from another investor and then sell it in the relevant market. The aim is to buy back the asset at a lower price and return it to its owner, making a profit along the way.

In a statement, Spain's CNMV regulator said it was imposing the ban in order to maintain market order: "The situation of extreme volatility across the European markets could interfere with their smooth functioning and the normal course of their activities."

Crisis jargon buster
Use the dropdown for easy-to-understand explanations of key financial terms:
The best credit rating that can be given to a borrower's debts, indicating that the risk of borrowing defaulting is minuscule.

It is not the first time that such a curb has been used by regulators. Almost a year ago, France and Belgium joined Spain and Italy in a ban on short-selling financial stocks to try to stabilise bank shares which had fallen sharply.

Markets have had a turbulent few days on fears that Spain's indebted regional governments will push the country towards a full bailout.

On Friday, Valencia, one of the country's 17 regions, asked the central government for a financial lifeline, and on Sunday, the Murcia region said it was considering following suit.

Shares in Europe fell when trading got underway on Monday, with Spain's main share index, the Ibex, down 5% at one point. It recovered slightly to close down 1% but Germany's Dax ended the day down 3%.

The US share markets opened with a downward jolt and the euro hit a new two-year low against the dollar.

'No help'

Spain's economy minister denied the country needed more help.

Start Quote

Spain's fragility is one you know well: the leg bone of an economy in a recession estimated to last two years is connected to the knee bone of undercapitalised banks is connected to the thigh bone of regions with debts they can't repay is connected to the hip bone of a government which cannot borrow at affordable rates”

End Quote

Luis de Guindos said: "We have made important economic reforms and we just reached an agreement with our regional partners over the recapitalisation of the banks, and from there we have done all what we could to establish the bases of a return to a healthy growth for Spain's economy."

Mr Guindos is due to meet his German counterpart in Berlin on Tuesday.

Markets remained unsettled. The yield on Spain's 10-year bonds reached a new euro-era high of 7.56% before falling back to 7.39% in late afternoon trading.

The bond yield indicates the interest rate the government would have to pay to borrow new money, and acts as a measure of investor confidence in Spain's creditworthiness.

Spain has already asked for and been granted a 100bn-euros bailout for its banks, so far avoiding asking for the same sort of national bailout that was needed by Greece, the Republic of Ireland and Portugal.

However, on Friday the Valencia region said it would be the first region to seek financial help from an 18bn-euro fund set up to help the country's regions.


A yield, or interest rate, of 7.5% on 10-year bonds takes Spain even further into the danger zone.

Higher borrowing costs can make the difference between a debt situation that is a problem and one this is ultimately unsustainable.

But the impact on the interest bill is slow. It's like turning an oil tanker.

When governments borrow they generally do by selling bonds - which are a promise to repay - and the interest rate is fixed for the lifetime of each batch of bonds. Each time Spain goes to the market for new money, the interest rate it pays then feeds into its total borrowing costs.

The general trend is upwards and that means the tanker is gradually turning towards the rocks. The eurozone has to decide whether to grab the wheel, giving a new bailout to keep those borrowing costs from rising further.

On Sunday, Murcia's government said: "Regarding the liquidity fund provided by the state, the regional government has repeatedly stated that it is studying whether to apply for it."

There is speculation that other regions are also considering seeking assistance, creating further pressure on central government finances.

There was more bad news for Spain on Monday when the Bank of Spain said the country's economy contracted by 0.4% in the three months to the end of June, having shrunk by 0.3% in the previous quarter.

Eurozone jitters also spread to Italy, which is also struggling with high debts. The main Italian share index closed down 2.7% with banks being the worst hit. UniCredit and Intesa Sanpaolo were among six Italian banks suspended from trading after their share prices fell sharply.

On the currency markets, the euro fell to a two-year low against the US dollar, at $1.2082 at one point on Monday and an 11-year low against the Japanese yen, 94.37 yen, its lowest level since November 2000, before recovering slightly.

The price of oil has also fallen by nearly 3%, a sign that markets think there will be waning demand for oil as a result of worsening economic prospects.


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  • rate this

    Comment number 655.

    JasonEssex : Banks made bad loans due to property bubble, Banks caused the property bubble by giving cheap loans for over priced property
    and on and on
    The Libor Rate is what sets the Interest rate for the loans banks give and get, the Banks have been caught manipulating that rate and who says they did not do the same thing and cause the collapse with the help of corrupt politicians they paid off

  • rate this

    Comment number 654.

    Looney Limey (650),

    "Spain is stopping short selling because confidence in the Banks is at an all time low ..."

    You are mistaken. "... Spain's market regulator blocked the practice for three months to try to restore order after sharp falls in bonds and shares ..."

    Go back and read the article

  • rate this

    Comment number 653.

    The Banks that are being bailed out by the IMF are undercapitalised banks that made loans to over leveraged lenders and experienced loss of capital because over leveraged lenders could not repay the loans
    The Banks made the loans and could not cash in on the (CDS) bets against the loans because the market crashed and they have no way to recover except cheat & steal which some do but not all

  • rate this

    Comment number 652.

    650.Looney Limey
    No its not. Spanish banks lent money to people and they are not going to repay it! Nothing to do with Libor. Spanish property has collapsed by around 50% in some places, the banks have to write that money off and they are basically bankrupt. When you have lent 100k a property to a developer who is bankrupt and the you can only sell the properties for 50k you lose money. Simples!

  • rate this

    Comment number 651.

    Looney Limey (642),

    “... even though they werey over leveraged and had no way to pay back the loans besides selling bonds ...”

    I am pleased to read that you admit that the foolish governments were selling Bonds they knew they couldn’t repay. I believe that selling securities one cannot repay is against the law. Shouldn’t you want to prosecute the politicians?

  • rate this

    Comment number 650.

    Spain is stopping short selling because confidence in the Banks is at an all time low and Spain is trying to protect what it has left by trying to stabilise bank shares which had fallen sharply
    Bank shares have fallen sharply because banks have lost the confidence they once enjoyed
    How can the market have confidence when 16 banks that have been caught red handed cheating the Libor Interest Rates

  • rate this

    Comment number 649.

    Looney Limey (642),

    “... Yes, selling bonds to raise money to pay off loans that Banks gave them ...“

    Another mistake! The foolish governments are selling bonds to raise money to pay off bonds the foolish governments sold in the past. Now that the banks don't trust some governments to repay their Soverign Debt, the banks are charging higher interest rates. Go back and read the article.

  • rate this

    Comment number 648.

    John F Kennedy once said , 'Our problems are man-made, therefore they may be solved by man. And man can be as big as he wants. No problem of human destiny is beyond human beings.' . It requires some out of the box thinking and even rethinking the very philosophy of how we want the human race to continue. Maybe changing how we trade goods , land, property and services with each other. Why money ?

  • rate this

    Comment number 647.

    642.Looney Limey
    The banks never gave them loans in the first place! Countries raise money by selling bonds which the banks often bought. Spains banks lent a huge amount of money to an inflated property bubble which they are now suffering for. If you can provide any info on banks lending money (except the IMF/EU) to Spain then you should report it to the FT as they would be amazed.

  • rate this

    Comment number 646.

    Banks cheated on the Libor rates, they are also being investigated for manipulating the price of Electricity in California and 11 mid west states (JPMorgan)
    Citibank manipulated the Libor rates the most out of American Banks

    Google "Libor rates scandal"

    and you will see this does not Contain potentially defamatory statements

    Yes, the Spanish should not be borrowing money they cannot repay

  • rate this

    Comment number 645.

    Looney Limey (637),

    “... That is not what Banks are supposed to do ...”

    You remain mistaken. Banks are willing to purchase Germany's bonds at a very low interest rate because there is almost no risk. But foolish governments must pay high interest rates because they don’t repay their loans, e.g. Greece.

  • rate this

    Comment number 644.

    The money never existed in Spain and Ireland case because it was the price of assets namely property which was overvalued by these so called superbrains masters of the universe (not) bankers they essentially were gambling with money they never had in reality (just in theory) the asset prices can never be realised therefore the money never existed

  • rate this

    Comment number 643.

    The country's paying for all of Europe's woes i.e. Germany, Finland, may opt to leave the Euro first thus leaving the rest of us under mountains of debt. They're not going to want to go on paying Europe's way while they're more or less the only countries working & earning their way. But if Greece were to be thrown out, or pushed, that would be as fateful. Spain's bailout will never be big enough!

  • rate this

    Comment number 642.

    638 Chryses : Spain's Debt was caused by Spain selling Bonds!
    Yes, selling bonds to raise money to pay off loans that Banks gave them even though they werey over leveraged and had no way to pay back the loans besides selling bonds
    Now that could possibly be why I think the Banks should not have loaned them money then bet against the loans

    That's the way banks roll

    They cheat

    At last we agree !

  • rate this

    Comment number 641.

    Looney Limey (637),

    “The Banks had no right making loans to over leveraged sovereign nations ...”

    You remain mistaken. The banks did not make loans to those foolish governments. Those foolish governments sold bonds that they can now not repay. The foolish governments are the problem, and now those foolish governments are risking their countries' banks, just as Greece has done to Cyprus.

  • rate this

    Comment number 640.

    639.Looney Limey
    Spain didn't have a debt crisis until the property bubble collapsed and they wouldn'y be in a state if they had the peseta. nor would greece with the drachma, or ireland with the punt. Try and blame the banks as much as you want but the fault lies with the EU and a completely contrived exchange rate designed to enhance German exports at the expense of everyone else.

  • rate this

    Comment number 639.

    "... It is all a big bubble of corruption chasing the pretend money anywhere it tries settle ..."

    Foolish nonsense. Spain's inability to meet its debts is the cause. Have you not noticed the Sovereign Debt Crisis going on in the EU for the last couple of years?

    Foolish nonsense. Bankers are corrupt and only interested in cheating the system by selling debt to over leveraged nations for a start

  • rate this

    Comment number 638.

    Looney Limey (625),

    “Spain's Debt and the Sovereign Debt Crisis was caused by Banks ...”

    More foolish nonsense. Spain's Debt was caused by Spain selling Bonds. Go back and read the article.

    “... Spain & others that should never had qualified for the debt ...”

    Yes, the Spanish, Greek, Portuguese, and Italian governments should not be borrowing money they cannot repay.

  • rate this

    Comment number 637.

    The Banks had no right making loans to over leveraged sovereign nations
    That is not what Banks are supposed to do
    Now the Euro Zone Nations are faced with more bail outs that no one can afford because Banks made cheap money available because they could bet against the loans and make millions on the Credit Default Swaps Market
    Just another Pretend Money sham
    The banks are cheating the people

  • rate this

    Comment number 636.

    Most people trading on the market are NOT "investors": they are not investing in productive capacity in order to achieve a long term return. They are speculators, gambling on whether prices will rise or fall short term, and trying to force the market if they can. In games theory, the game is called "the beauty contest".

    This is socially useless activity which should be taxed out of existence!


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