Yesterday saw European stock markets experience their worst day ever as a consequence of the Coronavirus. In response, the market regulators of Italy and Spain have imposed bans - effective today and backed up by other European regulators - on short sales of various stocks.

The Comisión Nacional del Mercado de Valores or CNMV decided yesterday to impose today's ban on short sales of all liquid shares admitted to trading on the Spanish stock exchanges whose price had fallen more than 10% yesterday and on all illiquid shares (in accordance with Delegated Regulation 918/2012) whose price had fallen more than 20%. There were 69 stocks to be blocked in all.

The regulator attributed its decision to the effect of the COVID-19 virus (so-called because it first appeared in 2019) on securities markets. European share prices have experienced extraordinary falls (minus 14.06% in the case of the IBEX 35) and a significant number of shares have crossed the thresholds set out in the aforementioned delegated regulation, which is a piece of EU law that applies in all member-states without any supporting legislation from national parliaments.

Meanwhile, the Italian reglator Consob has imposed a temporary ban on the short selling of 85 Italian shares, also effective today, on the MTA market of Borsa Italiana. This is to be found in resolution no 21301.

The prohibition applies to short sales backed by stock lending. This extended the extent of the prohibition of naked short selling, already in force for all shares from 1st November 2012 by virtue of the regulation (UE) no 236/2012 on short selling.

According to EU law, which it still has to obey for a while, the UK is obliged to uphold the two bans on its own soil, as are all other regulators in the EU.

Nick Bayley, the managing director and head of Duff & Phelps’ compliance and regulatory consulting practice in London, told Compliance Matters: “With markets having been in freefall across the globe, some regulatory authorities have looked to short-selling bans in an attempt to steady their markets and the Spanish and Italian authorities’ bans have been duly implemented by the FCA.

"However, the FCA has not itself banned short selling of any UK stocks yet and in my view is unlikely to do so, despite having the power under the EU Short Selling Regulation. In the height of the global financial crisis, the FCA did briefly ban the short selling of financial stocks and it led to significant price dislocations and confusion in the market. I fully expect that in this post-Brexit world, the ‘Northern European’ stance, that two views make a market and that short selling has a legitimate role, will continue to prevail here despite the market turmoil.”

On 4 March the Eurogroup convened a meeting of the finance ministers from the countries in the European Union that are using the Euro. It was a teleconference on the subject of the economic effect of the Coronavirus. They decided that the Coronavirus poses a clear and present danger of a massive recession in Europe and that it is a highly significant threat to European economies. They decided, however, to do nothing. Mário Centeno, the president of the Eurogroup, told the subsequent press conference that he looked forward to doing some "close monitoring."