The proposed regulation, which is in the form of a draft
bill, would extend the ban to include all German equities. It
would also ban the use of currency derivatives for
A German government official said that the bill "has been in
the making for some time" and its inception predates the ban
introduced by the Federal
Financial Supervisory Authority (Bafin), the
German regulator, last week. The Bafin ban and the draft bill
are separate and are the result of two different processes. The
draft bill is broader than the ban and would have no expiry
date. The ban expires on March 31, 2011.
At the moment just 10 German equities are affected by the
Bafin ban, as well as sovereign credit default swaps and
eurozone bonds. Currency and equity derivatives are not
The draft bill would ban currency derivatives based on the
euro which are not used to hedge.
There would be a disclosure rule, which would require market
participants to disclose short positions.
Equity derivatives are not affected under the Bafin ban. But
the draft bill says that the ban on uncovered short selling of
shares also applies to derivatives whose value is dependent on
the price of the shares. In other words, going short on equity
derivatives without holding the equivalent equity would be
The draft bill will be sent to cabinet ministers on June 2.
If it is voted through by the ministry, it will be passed
through to parliament before it can become law.
Elizabeth Gregory, a market strategist from ACM Markets in
Switzerland, does not think that a ban on currency derivatives
"It’s notoriously difficult to differentiate
between speculation and hedging," she said. "A realistic
outcome is that there won’t be any ban on currency
"What makes it more difficult with currency is that we
don’t have a single exchange. With the FX market,
there are so many more pools of liquidity," she said.
A round of discussion about the bill with market
participants will be held on May 27.
Sian Williams +44 207 779 8370 email@example.com