French markets regulator backs extension of short-selling ban

The head of France’s markets regulator has said he is inclined to extend the controversial short-selling ban put in place last month to restrain a violent sell-off in equity markets triggered by the coronavirus crisis.

The Autorité des marchés financiers last month ordered a month-long ban on bets against locally listed stocks, joining Italy, Spain and Belgium — and later Austria and Greece — in a crackdown. But other regulators across Europe, notably in the UK and Germany, have not followed suit.

In an interview with the Financial Times, Robert Ophèle, chairman of the AMF, noted that some listed companies have come under political pressure to cancel dividends — which normally knocks share prices — while others are braced for cuts to their credit ratings as balance sheets are strained by the effects of the viral outbreak.

Mr Ophèle defended the ban on short-selling, which runs until April 16, as a way to smooth out volatility in the French market. He said that while “short-selling is clearly needed” under normal circumstances to provide liquidity and help in price discovery, in “the current global bear market its value is low and even negative”.

He said that while the AMF has not seen “any negative effects on liquidity” from the restrictions, he accepted that it is “too early” to fully evaluate the effects.

“If I had to decide right now, I would probably be in favour of extending [the ban],” he said.

Short-selling involves borrowing shares and selling them, aiming to buy them back later at a lower price before returning them to the owner and pocketing the difference. The practice, often used by hedge funds, is controversial as many academic studies have cast doubt on its usefulness. It is also routinely blamed for exacerbating volatility during times of market stress. 

Defenders say banning it simply blocks investors from expressing a valid view on companies’ prospects or from identifying fraudulent practices, as well as hedging positions. 

Mr Ophèle said he had received “hundreds of letters from small investors asking to ban short-sellers”. The mail arrived once the ban was already in place, having been delayed by a postal service disrupted by the outbreak.

Activist investors have criticised the short-selling bans. Carson Block, who runs hedge fund Muddy Waters and had repeated run-ins with the French watchdog over his critique of retailer Casino in 2016, decried the move in an opinion piece for the FT.

“Those advocating for bans on short-selling are driven either by wilful ignorance, or by a desire to further entrench corporate socialism as the overarching principle of our capitalist system,” said Mr Block.

Mr Ophèle admitted that the possibility of misconduct in the market more broadly had now increased, with physical supervision of traders more difficult.

He said roughly 85 per cent of traders in France were now working from their homes but said that from a technological standpoint — in terms of recording trades and sending information to the regulator — there had been no issues so far as most surveillance was carried out by algorithms.

“We are checking all the trades . . . and at the end of the day if they look abnormal we will go after them,” said Mr Ophèle.

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