Tuesday, May 18, 2010 0 comments ++[ CLICK TO COMMENT ]++

Germany bans naked short-selling, short-sales of select financial companies, and CDS on government bonds

From Bloomberg:


Germany prohibited naked short- selling and speculating on European government bonds with credit-default swaps in an effort to calm the region’s financial markets, sparking anxiety among investors about increasing government regulation.


The ban, which took effect at midnight and lasts until March 31, 2011, also applies to the shares of 10 banks and insurers, German financial regulator BaFin said late yesterday in an e-mailed statement. The step was needed because of “exceptional volatility” in euro-area bonds, BaFin said.

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Allianz SE, Deutsche Bank AG, Commerzbank AG, Deutsche Boerse AG, Deutsche Postbank AG, Muenchener Rueckversicherungs AG, Hannover Rueckversicherungs AG, Generali Deutschland Holding AG, MLP AG and Aareal Bank AG are covered by the short-selling ban.

BaFin didn’t provide details on how it will enforce the ban, or whether it would extend to trades outside Germany. The majority of credit-default swap trading takes place in New York and London.

As the article suggests, it's not clear how Germany is going to crack down on CDS trades given how most of them are transacted in USA and Britain. The impact of the bans is likely to have very little impact on German markets and no impact on global markets. This action by the German authorities appears like a political move to placate voters than anything meaningful.

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