Sale of securities or commodity futures not yet owned by the seller, including precious metals. – In the case of uncovered (naked) short sales (uncovered sales, naked sales), the seller does not even borrow the securities or commodity futures on the corresponding sales date. – Corresponding transactions have a purely speculative character. The seller hopes that between the time of conclusion of the contract and the agreed delivery date the price of the security in question or the prices of the goods in question will fall. If such an expectation occurs, then he could buy cheaper and make a profit. – Such transactions are suspected of exacerbating downward pressure, especially on equities. However, it is fundamentally not short selling that is responsible for the fall in the price of a security – for example, Greek government bonds from spring 2010. Rather, this is caused by corresponding expectations on the part of market participants, and these expectations are rooted in mismanagement on the part of the company or government in question. – Moreover, short selling also has the effect of breaking upward price exaggerations, thus calming the markets and inhibiting speculative bubbles. On the other hand, however, short selling can also cause or exacerbate upward exaggerations if there is too little disposition to sell on the due date. – On July 27, 2010, the Act to Prevent Abusive Securities and Derivatives Transactions (Gesetz zur Vorbeugung gegen missbräuchliche Wertpapier- und Derivategeschäfte) therefore came into force in Germany. In principle, this means that uncovered (naked) short selling in equities and certain debt instruments as well as certain uncovered credit derivatives are no longer permitted. However, exceptions exist for securities service companies that act as market makers, lead brokers, designated sponsors (= a stockbroker who is active in the electronic trading system for securities at Deutsche Börse AG in Frankfurt am Main [Xetra] and procures the availability of shares there necessary for continuous trading on behalf of an issuer) or in comparable activities. In this case, however, securities service companies are required to notify the Federal Financial Supervisory Authority of this activity, indicating all financial instruments concerned. – See aggregation, agiotage, bar margin, corner, derivatives transactions clearing obligation, derivatives transactions reporting obligation, contract for difference, grace money, short sale prohibition, Abuse Act, option, naked, position, uncovered, bond arbitrage, short selling, speculation, snake trading, stock jobber, futures speculator, tulip crash. – See BaFin Annual Report 2008, pp. 40 f. (transparency requirements for short selling; establishment of a dedicated task force under CESR), BaFin Annual Report 2009, pp. 44 f. (draft on supervisory oversight), pp. 173 f. (dangers posed by short selling), BaFin Annual Report 2010, p. 48 (details on the intended control and timetable), pp. 190 ff. (detailed presentation of the new legal situation resulting from the WpMiVoG; prohibition exceptions; BaFin monitoring), pp. 192 f. (notification requirement in ten selected securities), BaFin Annual Report 2012, p. 171 (new EU short selling regulation); pp. 172 ff. (adaptation to German law in detail), BaFin Annual Report 2013, pp. 171 f. (European law applies; BaFin is still investigating some cases for violations of the national short selling ban), and the respective BaFin Annual Report, chapter “Supervision of Securities Trading and Investment Business.”
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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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