Short selling ban lifts bank shares

 
(FT) -- A partial ban on short selling in the eurozone boosted European bank shares on Friday but led to confusion among alternative trading platforms in London.
France, Italy, Spain and Belgium on Thursday all introduced a ban on the short selling of financial stocks for 15 days in response to sharp share price falls this week, but they failed to convince other regulators to go along with a European Union-wide prohibition.
The bans on the controversial practice where investors aim to profit from price falls takes effect on Friday morning. But other main markets, including the US and the UK, have said they have no plans to follow suit.
Jean-Pierre Jouyet, head of the AMF, the French securities regulator, said on Thursday night: "They wanted to test French resistance. This is our response, as always very determined, and it will be so for all those who want to put us to the test."
Banks across Europe reversed early losses with Belgium's Dexia recording some of the biggest gains on Friday. Unicredit of Italy and Crédit Agricole of France were also higher. Société Générale, one of Europe's most heavily sold stocks this week, rose 0.1 per cent on Friday.
But banks in countries not covered by the ban were also higher. Barclays and Royal Bank of Scotland of the UK rose, while Deutsche Bank, Germany's largest lender by market capitalisation, and Commerzbank also rose.
However, confusion reigned among a handful of London-based trading platforms - such as Chi-X Europe and BATS Europe - that offer trading in pan-European stocks, including for all four countries that imposed the ban. Legal experts at the platforms were in urgent conversations with the UK's Financial Services Authority, which regulates such platforms, over whether their customers were affected by the ban given that the platforms, being based in London, are regulated by the FSA, which has not imposed any such ban.
The introduction of the ban represents a partial victory for the new European Union market regulator, Esma, which has sought to avoid a repeat of the unco-ordinated actions that swept around the world after the 2008 collapse of Lehman Brothers. Greece and Turkey had already imposed restrictions on short selling earlier this week
EU regulators said they were acting to "restrict the benefits that can be achieved from spreading false rumours" at a time when volatile markets have unnerved many investors. Rumours that the French government was facing an imminent credit rating downgrade have been denied by rating agencies and the government. But they helped send shares in Société Générale down by 15 per cent on Wednesday. SocGen shares added 0.1 per cent on Friday morning, adding to a 4 per cent rise on Thursday.
But academics who have studied the 2008 bans said the new restrictions could backfire.
"It is the worst thing to do right now. This would signal to the market there may be something fundamentally bad that is happening," said Abraham Lioui, a professor at the Edhec business school in France.

Dutch regulator AFM said on Friday it did not see the need for a ban and had decided against it after consulting other European regulators.