As rumored earlier today France, Spain, Italy Extend Bans on Short-Selling

French, Italian and Spanish stock- market regulators extended temporary bans on short selling introduced this month in a bid to stem market volatility.

Spain and Italy extended their bans through Sept. 30, regulators in both countries said in a statement. France’s Autorite des Marches Financiers said its ban could last as long as Nov. 11. The “objective” is to lift the temporary ban on short-selling of financial stocks “as soon as market conditions allow,” Spain’s CNMV market regulator said.

The three countries, along with Belgium, imposed bans on short-selling of some financial stocks from Aug. 12 in an effort to stabilize markets after European banks including Societe Generale (GLE) SA hit their lowest levels since the credit crisis of 2008. The restrictions cover short selling of shares and equity derivatives in some financial firms.

Wasn’t this Supposed to be Good News?

Why yes it was. So was the initial short-selling ban. Was it? Of course not.

Artificially driving out shorts creates air pockets of no support because it does not apply to market makers.

DAX 5 Minute Chart

click on chart for sharper image

I show a 4.8% plunge in about 45 minutes. I can also come up with 3.9% in 20 minutes.

The total top-to-bottom swing was 5.6% after a ridiculous gap up, probably coinciding with “good news” from Buffett. See Bank of America Surges on Fluff Buffett Deal; German DAX Market Plunges 4% in 15 Minutes; What’s Buffett Doing? Bear Market Rallies End on Good News for details.

This kind of consistent, heightened intraday volatility is not healthy to say the least. It is a bear market sign, and given that bank stocks are the biggest part of the volatility, it is also a sign of huge bank stress.

Mike “Mish” Shedlock

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