Spain’s securities regulator bans short-selling for a month to protect local stocks from the volatility caused by the coronavirus outbreak.
18 March, 2020 | AtoZ Markets – The coronavirus has spread like wildfire in Spain, making it the second most affected country in Europe. Coronavirus cases registered in Spain increased by 1,400 overnight, reaching a total of 9,190, with 309 deaths, the health ministry said. Italy has more than 24,000 cases and more than 1,800 deaths, according to the World Health Organization. Spain closed its borders with France and Portugal to contain the spread of the coronavirus.
Banning Short Selling to Shield Local Stocks
Spain’s National Securities Market Commission (CNMV) bans short-selling to protect local stocks from the recession caused by the coronavirus epidemic. The ban begins on March 17 and can be extended for additional periods not exceeding three months. Moreover, the ban covers short-selling even when a securities loan covers such operations, the CNMV said.
In short selling, traders borrow shares of a company to sell them. They hope to buy them later at a lower price and pocket the difference. It is a practice that often exacerbates market movements in the context of panic selling. The CNMV explained:
“We were committed to taking such measures due to the extreme volatility taking hold of European securities markets, including those based in Spain. Their performance in the context of the situation arises as a result of the virus COVID-19 and the risk of disorderly trading taking place in the following weeks. Another factor considered has been the consequences of the announcement of the state of emergency.”
Spain, as well as Italy, had previously ordered a one-day ban on short-selling during the March 13 sessions. The benchmark Ibex index of Spain fell to its lowest intraday level since March 2003 during the session on Monday, before closing at its lowest level since 2012.
The coronavirus has hit the global economy. The US Federal Reserve cut interest rates by half a percentage point. Even NYDFS demand that all regulated crypto companies submit detailed “preparation plans” to deal with coronavirus. Yesterday, ASIC also issued new regulations to ensure the stability of the Australian equity market due to the coronavirus outbreak.
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