Crazy Germans! Wall Street spasms
Wed May 19, 2010 at 05:13:36 AM CDT
The German financial regulator announced a ban on naked short selling of government debt certificates, shares of some financial companies and some CDS. The ban is effective for one year. Regulators globally ought to join the German move and should also assess the role naked shorting plays in distorting financial markets, a process that is essentially akin to criminal counterfeiting of securities.
Several other people have posted on naked short selling (you can find those diaries by searching "naked short"). Much of the discussion in the mainstream press has focused on naked short selling of stock; the German policy is significant and new because it temporarily bans naked short selling of government bonds, a step that regulators did not take during the depths of the financial crisis and, second, the global bond market is significantly larger than the global equity markets
Most developed countries allow naked shorting of bonds. Of note, South Korea recently allowed the practice so that its sovereign bonds could be included in a Citigroup World Government Bond Index. more