The International Securities Lending Association says it is disappointed in Germany’s decision to ban the naked short selling of certain assets, including the prohibition of credit default swaps on government bonds.
Isla’s chief executive Kevin McNulty says short selling is a good thing because it adds liquidity to markets, helps price discovery, and reduces spreads.
“It lends a huge hand in price formation so share prices are more reflective of their actual value and are therefore more valuable to all investors,” he says.
There is a theoretical risk with naked short selling that it can lead to large numbers of failed settlements. But Isla has not seen any evidence of this risk in practice given that settlement rates in Europe are so high.
“We are disappointed in Germany’s decision to act ahead of the European Commission’s rulings for a pan-European approach to short selling which is fair to investors and to the market,” adds McNulty.
