Corporate Alert
05 June 2009
Author:
BaFin extends short selling restrictions
Mathias Schulze Steinen
Mathias.schulze-steinen@klgates.com
+49.69.945.196.260
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Summary
The German Federal Financial Supervisory Authority ("BaFin") issued a Decree
dated 29 May 2009 that it extends the ban of short sales of shares of a number of
German financial and insurance sector companies as stipulated in the Decrees dated
19 September 2008 and 21 September 2008 (the "Ban"). The Ban shall apply until 31
January 2010 but can be revoked at any time during the period of application of the
Decree.
Background
BaFin's announcement queues in a series of measures initiated by financial regulators
around the globe in September 2008 in the attempt to prohibit the active creation or
increase of net short positions in companies active in the financial and insurance
sector. On 19 September 2008, BaFin issued a General Decree that prohibits naked
short selling in the securities of the following 11 issuers: Aareal Bank AG, Allianz
SE, AMB Generali Holding AG, Commerzbank AG, Deutsche Bank AG, Deutsche
Börse AG, Deutsche Postbank AG, Hannover Rückversicherung AG, Hypo Real
Estate Holding AG, MLP AG, Münchener Rückversicherungs-Gesellschaft AG. The
BaFin Decree from 21 September 2008 exempts shorts sales from the above Ban
provided that the transaction relates to a trade that has to be settled at a fixed or
definable price (Festpreisgeschäft).
BaFin's Rationale for the Extension
BaFin justifies the extension of the Ban by the ongoing developments on the market
that still might jeopardise the proper execution of securities trading and the stability
of the financial system. Also, the volatility in the shares of credit institutions,
operators of stock exchanges, insurance companies and other companies from the
financial sector was continue to be very high. BaFin also refers to the CDS spreads
that it still considers as significantly high, in particular in the banking sector. By
influencing the prices of the stocks specified above, transactions resulting in the
creation or increase of a net short position in shares would, from BaFin's perspective,
by reason of the importance of the companies for the aggregate German economy,
reinforce this development and would therefore result in further excessive price
movements which might jeopardise the stability of the financial system and thus
entail serious liquidity shortages by putting pressure on the share price, thus making
it more difficult of the companies to raise capital.
Corporate Alert
BaFin acknowledges that there is a slight upward
trend in the financial market but it does not justify
a more moderate, equally effective measure to
preserve and strengthen the trust of market
participants in the effective functioning of the
capital markets from BaFin's perspective.
As this new Decree on the extension of the Ban is
subject to the reservation of revocation it allows
BaFin to promptly lift the Ban in the event of a farreaching stabilisation of the markets and, thereby, to
respond flexibly to current market developments.
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