Germany extends ban on short selling

GERMANY is expected to roll out further restrictions on short selling.

A draft German finance ministry document yesterday called for restrictions on speculative trades to be extended to all shares, widening a ban imposed last week.

The shock move last week banned naked shorting on top financial firms, euro government bonds and related credit default swaps.

The move stunned markets, contributing to a climate of uncertainty that sent the euro close to a four year low against the dollar. It was immediately set upon by analysts who branded the panic move “desperate”.

It was seen as largely symbolic because it was isolated -- only Australia followed -- and most of the affected trading takes place in London. The ban will run for almost a year, finally coming to an end on 31 March 2011.

Naked shorting is when a trader sells a financial instrument, such as a shares or bonds, that they have not yet borrowed.