Regulator reiterates short-selling ban

THE FINANCIAL Regulator has reminded stockbrokers in Ireland and overseas about the ban on short-selling Irish bank shares in light of the recent heavy market volatility in financial stocks.

The regulator issued a notice to the markets reminding brokers “to continue their vigilance in relation to the short-selling ban”, which prohibits investors making profits on falling Irish bank stocks.

The regulator would only comment beyond the stock market notice to say that the reminder was “a precautionary measure”.

The regulator is targeting brokers and their compliance departments, particularly in the UK, to remind them that the Irish short-selling ban on bank stocks remains in place. The reminder was issued in response to queries about the continuing existence of the ban.

The ban was introduced in September 2008 to protect the banks following increased volatility in the equity markets as the banking system faced near collapse at the height of the financial crisis.

It has remained in place since then, while the UK regulator, the Financial Services Authority (FSA), lifted a similar ban on British bank stocks last January.

The regulator said in the stock market notice that “most brokers are careful to ensure that they do not facilitate short-selling in breach of the ban”.

“The Financial Regulator is concerned that all brokers, including those based outside of Ireland, maintain a sustained awareness of the continuing requirement to refuse to execute transactions with persons aiming to short-sell Irish bank shares, or to acquire short positions through instruments such as CFDs [contracts for difference] and spread bets,” the notice said.

The regulator said it would continue to work closely with the FSA and other regulators “to supervise compliance with the ban”.

The notice was posted by the regulator to clarify any ambiguity which may exist as Irish bank shares have dual stock market listings in Dublin and London.

It is believed that the regulator has not discovered any significance instances where the Irish short-selling ban has been breached, nor does it believe that the recent fall in bank share prices has been driven by short selling.

Irish bank shares have fallen steadily over the past fortnight amid growing investor concerns about the banks’ capital needs and whether they can raise equity privately or will need further State capital.

Bank of Ireland’s share price has fallen 40 per cent since the middle of last month, while Allied Irish Banks is down 45 per cent since the end of September.

Bank shares were also driven lower by fears that the EU may force harsher restructuring terms for banks in receipt of state aid after the European Commission sought the break-up of Dutch bank ING as a condition of its bailout.