Germans Ban on Naked Short-Selling Just Fueling More Fear

Say “auf Wiedersehen” to naked short selling in Germany. Because of “exceptional volatility” in euro-area government bonds and credit-default swaps, massive short-selling was leading to excessive price movements which “could endanger the stability of the entire financial system,” Germany’s BaFin financial services regulator said today.
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Germany said “auf Wiedersehen” to naked short selling, but it appears the ban is doing nothing but raising fears that Europe is in the midst of a financial crisis of its own. Traders are already clamoring to close out open positions, but who knows if the ban will really prevent a financial calamity.

Germany's BaFin financial services regulator said it instituted the ban because “exceptional volatility” in euro-area government bonds and credit-default swaps, massive short-selling was leading to excessive price movements which “could endanger the stability of the entire financial system."

The ban on naked short-selling of CDS and European government bonds takes place starting at midnight on lasts until March 31, 2011. It also applies to naked short-selling in shares of 10 banks and insurers.

They include: Aareal Bank AG, Commerzbank AG, Deutsche Bank AG and Deutsche Postbank AG, insurer Allianz SE; reinsurers Hannover Re AG and Munich Re AG; Generali Deutschland Holding AG, MLP AG, and Frankfurt stock exchange operator Deutsche Boerse AG.

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