Germany clamps down on speculative trading, euro slides
Thursday, 20 May 2010
BERLIN, May 19 (AFP): Germany clamped down on speculative trading, introducing new rules today in a bid to ease the market volatility it says threatens the eurozone economies.
Germany's securities market regulator Bafin banned naked short sales of certain securities, in particular the government bonds of the 16 countries that use the euro, from midnight Tuesday (2200 GMT).
But the euro continued to fall on the world's currency markets, with some traders saying the German move had accelerated the trend.
Naked short selling is when an investor sells on the market a security they do not own and have not even borrowed, hoping to be able to buy it later in the day at a lower price, thereby earning a profit.
"The extraordinary volatility of the bonds of eurozone states" justified the ban on short selling said a statement from Bafin.
Given current market conditions, "new excessive price variations could harm many on the financial markets and threaten the stability of the whole financial system," said the statement.
In addition to eurozone government bonds, the ban also applies to certain credit default swaps and on the shares of 10 financial institutions, and will be in force until March 31 next year.
Short selling has been repeatedly implicated in quick drops in markets, and its use has been limited or banned during the financial crisis on major exchanges.
The euro however, kept falling.
In New York, the it fell further against the dollar Tuesday, fetching 1.2206 dollars at 2100 GMT after sinking to 1.2162 dollars, its lowest level since April 17, 2006 in New York trading.
And in Tokyo Wednesday, it was changing hands at 1.2144 dollars in early trade, a new four-low against the dollar.
"Reports on restrictions on the financial markets always work as the negative factor to the relevant currency," said Daisuke Karakama, senior market economist at Mizuho Corporate Bank, echoing comments from US traders.
Greek officials say speculative trading played a major part in provoking their debt crisis.
Athens was eventually forced to accept a 110-billion-euro (134-billion- dollar) bailout from the European Union and the International Monetary Fund earlier this month.
When that failed to calm investors' fears that the Greek crisis could spread to other heavily indebted eurozone members, the EU and IMF were forced to put together a 750-billion-euro fund.
In Brussels meanwhile, EU finance ministers on Tuesday moved towards tighter curbs on the trillion-dollar hedge fund industry, widely blamed for speculative financial attacks, in particular on currencies.
Germany's securities market regulator Bafin banned naked short sales of certain securities, in particular the government bonds of the 16 countries that use the euro, from midnight Tuesday (2200 GMT).
But the euro continued to fall on the world's currency markets, with some traders saying the German move had accelerated the trend.
Naked short selling is when an investor sells on the market a security they do not own and have not even borrowed, hoping to be able to buy it later in the day at a lower price, thereby earning a profit.
"The extraordinary volatility of the bonds of eurozone states" justified the ban on short selling said a statement from Bafin.
Given current market conditions, "new excessive price variations could harm many on the financial markets and threaten the stability of the whole financial system," said the statement.
In addition to eurozone government bonds, the ban also applies to certain credit default swaps and on the shares of 10 financial institutions, and will be in force until March 31 next year.
Short selling has been repeatedly implicated in quick drops in markets, and its use has been limited or banned during the financial crisis on major exchanges.
The euro however, kept falling.
In New York, the it fell further against the dollar Tuesday, fetching 1.2206 dollars at 2100 GMT after sinking to 1.2162 dollars, its lowest level since April 17, 2006 in New York trading.
And in Tokyo Wednesday, it was changing hands at 1.2144 dollars in early trade, a new four-low against the dollar.
"Reports on restrictions on the financial markets always work as the negative factor to the relevant currency," said Daisuke Karakama, senior market economist at Mizuho Corporate Bank, echoing comments from US traders.
Greek officials say speculative trading played a major part in provoking their debt crisis.
Athens was eventually forced to accept a 110-billion-euro (134-billion- dollar) bailout from the European Union and the International Monetary Fund earlier this month.
When that failed to calm investors' fears that the Greek crisis could spread to other heavily indebted eurozone members, the EU and IMF were forced to put together a 750-billion-euro fund.
In Brussels meanwhile, EU finance ministers on Tuesday moved towards tighter curbs on the trillion-dollar hedge fund industry, widely blamed for speculative financial attacks, in particular on currencies.