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European exchanges pledge to stay open in face of coronavirus stampede

European exchanges have vowed to stay open for business despite extreme volatility triggered by the coronavirus epidemic and four countries banning short-selling to shield some of Europe’s biggest companies.

The Federation of European Securities Exchanges (FESE) said European exchanges will and should continue to remain open at all times. 

“Closing the markets would not change the underlying cause of the market volatility, it would remove transparency of investor sentiment and reduce investors access to their money,” FESE said in a statement. 

Huge falls in share prices on both sides of the Atlantic have sparked talk that governments could close markets for a period to calm investor nerves. 

US Treasury Secretary Steve Mnuchin said the Trump administration intends to keep markets open through the coronavirus crisis, although shorter trading hours may be needed at some point. 

FESE’s director general Rainer Riess said that during a time of heightened volatility and anxiety, it would not be wise to change operations in such a way. 

“This is a topic that requires careful consideration and given various consultations ongoing it would be premature to speculate about any changes,” he said. 

European exchanges were already considering a permanently shorter session before the coronavirus hit markets given their trading day is far longer than on Wall Street. 

FESE said the closure of markets during the current crisis could hit contracts and generate an “unpredictable number of defaults”. 

While exchanges vowed to stay open, France, Italy, Belgium and Spain introduced temporary measures to halt bets on falling shares at scores of companies from the world’s largest brewer Anheuser-Busch InBev, to Spanish bank Santander and Air France-KLM. 

The curbs, and calls by some Italian politicians for stock markets to be shut, were in contrast to the US and Britain, where regulators said they should stay open and no curbs are imposed. 

The intervention by some of Europe’s biggest countries, last seen in the wake of the 2008 financial crisis, also underscores a growing sense of alarm in Europe’s capitals as they scramble to contain a disease that has shut schools and shops.

In short-selling, traders borrow a company stock with a view to selling it, hoping to buy it back later at a lower price and pocket the difference, a practice that often exacerbates market moves amid panic selling.

Italian market regulator Consob said last night it was introducing a three-month ban on net short positions which, for the first time, applied to the entire Milan stock market. 

The move follows two 24-hour short-selling bans adopted by Consob in recent days to curb speculation in a market which has lost almost 40% of its value in less than a month. 

The ruling 5-Star Movement, part of a governing coalition, had even called for the country’s stock markets to be closed entirely. That, however, has not gained wider political support. 

Asked whether stock markets should be closed, French Finance Minister Bruno Le Maire said that other things could be done first, such as banning short-selling, describing that as “a first step to calm things down”.

He said it was important to keep financial markets open so companies can be correctly valued. 

Other countries are hesitant to follow. 

Germany has said it is not planning a ban, while the Dutch financial watchdog said it saw no reason for such a move. 

The splintered response highlights differing views in Europe to financial markets, with Italy and France traditionally more sceptical and interventionist, while Britain, the Netherlands and, to some extent, Germany more liberal. 

The London Stock Exchange said it had no plans to stop trading. 

France is banning short-selling on 92 stocks, the financial markets authority said. Spain imposed a one-month ban that could be extended. 

Such restrictions can wrong-foot hedge funds, who often rely on short-selling to turn a profit in a downturn, as well as to counterbalance other bets they have taken. 

In Italy, hedge funds held 84 short positions as of yesterday compared with 33 in Spain and 20 in Belgium. 

French regulator the AMF reported 728 notifications of changes to short positions in 2020. 

Bridgewater, the world’s biggest hedge fund, has placed a $15 billion bet against European and British companies although it is not clear whether the firm owns more European stocks than it shorts. 

Under European Union law, national authorities have the power to introduce such bans. 

They are required to inform the EU umbrella body, the European Securities and Markets Authority. 

Many countries curbed short-selling around the time of the 2008 financial crisis. While such bans can soften the impact of a shock, however, market experts say they only work for a limited time.

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