Mitigating the associated risks with the coronavirus has become a substantial issue for financial governing institutions. This includes the European Securities & Markets Authority (ESMA), who confirmed they favour the decision implemented by France’s national financial agency. These implementations included the temporary cancellation of short selling, which will stand for thirty days. This means that transactional contracts or trades that’ll increase net short positions with stock exchanges in France have been postponed. French markets are better protected with temporary legislation of this nature.
The short-selling trading strategy has continuously allowed for investors and clientele to make profitable trades during a markets decline. Short selling requires selling borrowed assets and watching those respective assets lose their valuations—those sellers than re-purchase those acquired assets and make a minimal to substantial profit. Covid-19 won’t be a situation that enables France’s ruthless traders to earn profits off unsuspecting citizens.
March 18th marked the commencement of this postponement. It won’t be re-initiated until April 16th, with potential increased delays possible depending on the situation of COvid-19 in Europe. Ensuring that markets remain stable is essential for all legalized and registered clientele across the European Union. It should be mentioned that this short trading postponement applies to Over-the-Counter engagements as well. Refusal to abide by these provisional measures could prompt severe fine.
Representatives with the European Securities & Markets Authority provided publish remarks on France’s decision. They stated: “ESMA considers that the proposed measure is justified by current adverse events or developments which constitute a serious threat to market confidence and financial stability in France and that it is appropriate and proportionate to address the existing threat to market confidence in the French market.”
Spanish Regulators Receive ESMA Approval
France wasn’t the first country to implement these emergency measures. Short Selling Prohibitions were seen throughout Spain before any other European Country. The Spanish National Finance Commission announced hours before France that they’ll be approving temporary legislation that sees Short Selling prohibited until April 17th. Details regarding potential punishments for refusing to abide by this legislation weren’t detailed. It’s expected that fines or possible prison time could be awarded, with financial regulators having to ensure the safety of their respective markets.
The Global Response
Regulators in the European Union, Asian Territories, North America, Africa and Australia have worked towards reducing the associated risks involved with the coronavirus. The increased volatility and higher trading volumes could prompt significant issues for global markets by May. Global regulators responding to this matter include the Australian Securities & Investments Commission, who implemented emergency trading measures. There are limitations to the number of trades available to each respective trader. This follows after exchanges themselves were informed to reduce tradable contracts by 25%.