On Wednesday 12 July, the European Securities and Markets Authority (ESMA) published a favourable opinion on renewing the short selling prohibition on securities of the Spanish bank Liberbank, for a period of two months.
The renewed measure, which will apply from 12 July to 12 September 2017, aims to reduce the risk of a loss of confidence in the Spanish banking system, by prohibiting the shorts elling of Liberbank securities – a practice considered risky, that consists of borrowing a security against the payment of interest, selling it, then waiting for the price to fall before buying it back and returning it to the lender, having made a profit.
Liberbank, a modestly sized bank under the supervision of the European Central Bank operating in four regions of Europe, has seen its share price fall, bringing about a loss of 45% of its capitalised value, following the recent resolution of Banco Popular, which was purchased for the symbolic price of €1 by Banco Santander (see EUROPE 11803).
On 12 June, the Spanish stock exchange authority, the Comisión Nacional del Marcado de Valors (CNMV), notified ESMA of its intention to prohibit short selling for a period of one month to prevent a greater deterioration of the bank's situation, which could constitute a “serious threat to financial stability in Spain”. In line with the rules of Regulation 236/2012 on the matter, ESMA returned a favourable opinion on the same day, concluding that the measure was appropriate, necessary and proportionate.
According to CNMV, the Liberbank share price has stabilised since the prohibition measure came into force. Even so, it is continuing to show considerable volatility and has still not recovered the price level of before the resolution of Banco Popular, thereby justifying an extension of the prohibition, which will be lifted once the situation has returned to normal. (Original version in French by Marion Fontana)