France fights back on BaFin ban

Germany’s midnight move to ban naked shorting hasn’t quite led to an outbreak of European unity, it’s safe to say — with France lining up to attack first.

As Reuters reports, French economy minister Christine Lagarde is none too happy:

RTRS-FRANCE ECON MINISTER SAYS REGRETS UNILATERAL DECISION BY GERMANY ON NAKED SHORT SELLING

RTRS-FRANCE ECONOMY MINISTER SAYS NAKED SHORT SELLING OF EUROPEAN DEBT USEFUL “FOR LIQUIDITY NEEDS”

RTRS-FRANCE NOT CONSIDERING BAN ON NAKED SHORT SELLING IN EUROPEAN DEBT – LAGARDE

RTRS-LAGARDE CALLS FOR MEETING OF EUROPEAN MARKET REGULATORS ON SOVEREIGN DEBT NAKED SHORT SELLING

Now, two caveats here. First, French banks are some of the biggest CDS writers in Europe. Second, France already bans naked shorting of key financial stocks, which formed the other part of Tuesday night’s German measures.

Lagarde was not alone, however.

Britain’s Financial Services Authority was quick to issue this statement earlier:

We note what Germany has implemented and we will assist business wherever appropriate. The scope of these bans relates to German participants or business taking place inside Germany and does not cover branches of German institutions outside of Germany.

While Dutch regulators also said they have no immediate plans to introduce their own naked shorting ban, according to Dow Jones.

And last — but not least — EU internal markets supremo Michel Barnier’s comment on the German move was just a tad double-edged, seemingly annoyed that Germany has acted so suddenly:

Financial markets are currently uncertain and volatile. I fully understand German and Austrian concerns about possible impacts of naked short selling in this context.

These measures will be even more efficient if they are coordinated at European level.

I have called Mr Wymeersch, Chairman of CESR, who has intensified the ongoing coordination of fellow European security regulators in the last few hours. I agree that discussing this issue on Friday at the finance ministers meeting would make sense.

(H/T the FT’s Jennifer Hughes.)

Ah yes — volatility.

As Markit noted on Wednesday, this is up, up, up in CDS:

The regulatory uncertainty created by the Bafin ruling has created febrile conditions. Liquidity is low and volatility is high. After the sovereign tightening at the open - investors were looking to unwind hedges and close out short risk positions – sovereign spreads have widened back out again. The market is awash with rumours and protection buyers have come back into the game. Corporates and financials with peripheral exposure have underperformed significantly, indicating that the market is becoming more wary of a peripheral sovereign default.

In particular, Greece CDS is back around 600 basis points with bid/offer spreads of 100bps.

Heckuva job, BaFin.

http://ftalphaville.ft.com/blog/2010/05/19/236166/france-fights-back-on-bafin-ban/