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Italy to ban naked short-selling on stocks

Published: Friday, 11 Nov 2011 | 6:33 PM ET

MILAN - Italy announced a ban on naked short-selling of stocks on Friday, in a bid to reduce market volatility due to the worsening euro zone debt crisis.

Market regulator Consob said on Friday it would ban naked short-selling on the whole regulated stock market from midnight, December 1, in a bid to reduce market volatility due to the worsening euro zone debt crisis.

The move came as it also extended a ban on short-selling on financial stocks until January 15, 2012, a day after France extended its own short-selling ban on the shares of 10 financial institutions by three months.

Bans on short-selling were introduced earlier this year to discourage speculative trading on financial institutions after Italian and French banking stocks took a beating last summer.

Short-selling is the process through which an investor borrows shares and sells them on the expectation their price will fall and they can be bought back at a lower price.

In a naked short sale, the investor has not borrowed the share, but still bets on a drop in the share price.

Consob added it would continue to coordinate with other European market watchdogs to assess future action, which may include lifting the ban if market conditions allow it.

At present France, Italy, Greece, Spain and Belgium have short-selling bans in place.

Other major stock markets, including Britain, have refrained from imposing short-selling curbs.

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http://www.cnbc.com/id/45259855