Spain to toughen short selling rules

Spain's stock market regulator is to toughen controls of equity short selling with plans to extend current reporting rules beyond financial sector stocks.

The National Stock Market Commission (CNMV) said late on Thursday that hedge funds and other short sellers would have to inform the regulator of positions of more than 0.2 per cent of total capital in all listed companies after June 10 this year.

Positions above 0.5 per cent will have to be communicated to the public via the CNMV website.

At present, only short positions of more than 0.25 per cent in financial sector stocks must be communicated to the public, a rule that was introduced to curb speculative trading amid the market turmoil following the collapse of investment bank Lehman Brothers in September 2008.

Short selling usually involves selling borrowed stock in the hope of buying it back later at a lower price and pocketing the difference. Naked short selling, in which the speculator operates without possessing the actual shares, has always been forbidden in Spain.

The regulator's move follows intense debate in Europe over regulation of short selling.

This week, the German government unveiled plans to extend its ban on naked short selling on eurozone sovereign bonds, credit default swaps and the shares of a group of 10 leading German financial stocks to all German stocks listed on the country's exchanges.

There has also been pressure on the Dutch government to lobby for a Europe-wide ban on speculative dealing.

Spanish banks have been constantly targeted by short sellers since the collapse of Lehman, partly because their shares are among the most liquid in Europe and also because of the perception that the financial crisis would force sector consolidation.

Many investors, however, lost money last year as their bets backfired. Spain's 2007 property crash, and ensuing sector shake-out, also gave rise to intense short selling activity in the country, along with a wave of mergers and acquisitions in the electricity sector between 2006 and last year.

The CNMV said on Thursday night the reporting modifications were based on recommendations by the Committee of European Securities Regulators drafted in March. As part of the new rules, funds will also have to publish fortnightly reports of all short positions between 0.2 per cent and 0.5 per cent.

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