Italy cracks down on short-sellers

ITALY’S stock market regulator Consob yesterday rushed through tough new rules on short-selling after Friday’s wave of panic selling of bank shares unsettled markets and sparked fears of contagion.

In a desperate bid to prevent the Eurozone sovereign debt crisis from engulfing Italy, Consob ruled that from today until 9 September market operators will have to disclose short-selling moves involving Italian positions that amount to 0.2 per cent or more of the company’s capital, as well as variations of 0.1 per cent.

The clampdown comes as Europe’s leading power brokers meet in Brussels today to discuss a second rescue package for Greece and how to stop the debt crisis spreading to other Eurozone countries such as Italy.

There were reports last night that the EU stance on Greece was shifting, to include the possibility that Athens should default on some of its bonds as part of a new bailout plan. European leaders have until now been reluctant to authorise any form of default for fear it could contaminate bond sales across the Eurozone.

Shares in the blue-chip Italian stock index, the FTSE Mib, closed 3.5 per cent down on Friday as fears of Eurozone contagion undercut investor confidence, especially in the banking sector. The sellout pushed the euro lower and the yield spread between Italy and Germany’s 10-year debt reached a lifetime high of 2.45 per cent.

The sell-off was sparked by the news that Italy’s finance minister Giulio Tremonti was caught up in a corruption scandal involving one of his closest advisers. There were also reports that US hedge funds are shorting Italian sovereign debt, perhaps to destabilise the country’s situation.

Italy has one of the highest debt levels in the world, at about 120 per cent of gross domestic product.

Mario Draghi – the head of the Bank of Italy and future president of the European Central Bank (BCE) – sought to reassure investors, saying he was “certain” Italy’s banks would this week pass European stress tests.