Exchange traded funds that invest in Spain and Italy are looking for some relief from the recent selling as bans on short selling in the two countries have been extended.
The temporary ban on short-selling financial shares in Italian and Spanish markets has been extended as the previous Sept. 30 end-date approaches.
The iShares MSCI Italy Index Fund (NYSEArca: EWI) has lost 27% for the past 12 months,and the iShares MSCI Spain Index Fund (NYSEArca: EWP) is down 17% over the past year.
Short sellers sell borrow shares and sell them to investors, hoping to buy them back later at a lower price. It’s a way to bet against stocks. [Europe ETFs Fall as Short Selling Ban Extended]
“The ban only succeeded in drying up liquidity, increasing volatility and those stocks subject to it will be worse performers,” Simon Maughan, head of sales and distribution at MF Global Ltd, said in a Bloomberg BusinessWeek report. “This is what the ban has achieved.”
The European Securities and Markets Authority announced the latest extension with the Spanish ban intended “until the market conditions allow it.” The restriction on Italy will last until Nov. 11, according to the report .[European ETFs Move Higher With All Eyes on Greece]
There is another short selling ban for France, which was put into action in August. There will not be any breaks for the French ban until Nov. 11.
The use of short selling bans for “prolonged periods may distort required market adjustments,” Richard Reid, the International Centre for Financial Regulation’s director of research, said in the Bloomberg report. “It is not even clear how effective such bans are. After all, we have seen some really dramatic market movements in recent weeks when these bans have been in place.”
iShares MSCI Italy
iShares MSCI Spain
Tisha Guerrero contributed to this article.