Germany Bans Naked Short-Selling

By Alan Crawford and Shannon D. Harrington

Germany prohibited naked short- selling and speculating on European government bonds with credit-default swaps in an effort to calm the region’s financial markets, sparking anxiety among investors about increasing government regulation.

The ban, which took effect at midnight and lasts until March 31, 2011, also applies to the shares of 10 banks and insurers, German financial regulator BaFin said late yesterday in an e-mailed statement. The step was needed because of “exceptional volatility” in euro-area bonds, BaFin said.

Chancellor Angela Merkel’s coalition is seeking to build momentum on financial-market regulation, with lower-house lawmakers due to begin debating a bill today authorizing Germany’s contribution to a $1 trillion bailout to backstop the euro. U.S. stocks fell, Treasuries soared and the euro extended its decline as the announcement, made after Europe markets closed, caught traders by surprise.

Continue reading Germany Bans Naked Short-Selling, Default Swap Speculation