Tuesday March 24, 2020 - 13:28:39 GMT
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EU Bans Short-Selling Due To COVID-19
The spread of COVID-19 has led to an increase in volatility in the market, causing financial regulators to put in emergency measures in response. Currently, their focus has shifted to the short-selling of certain financial instruments.
Short-selling is a risky way to profit from declining stock prices and is considered an act of betting against a stock or company.
With the outbreak of the coronavirus, many companies have suffered potentially irreversible damage, with the biggest hits being taken by hotels, restaurants, cafes and physical casinos. Those who could, started working from home, while others are in danger of potential redundancy, depending on how long the quarantine will last.
Unfortunately, newer businesses are at the front line of the attack, as they tend to lack the experience, flexibility, capital, and manpower to deal with something of this magnitude. With the small local shops, cafes, pastries, and etc. shutting down, there’s no telling if they will ever come back, or if they will be seeing new owners.
With this in mind, even without checking stock prices for the companies, it’s easy to tell that many of them will be in great distress, allowing investors to capitalize on the moment and earn personal profits at the cost of further turmoil in the market.
However, with everybody having to practice self-isolation, sheer boredom has overtaken many of us, essentially having us flock to online-based activities, allowing them to see tremendous growth as a result. Gaming specifically, has been gaining a lot of interest in recent times. Now, that’s not to say they weren’t popular in the first place, but with their physical counterparts forcibly shutting down, the online platforms that provide the experience have gained more interest from the public. Alongside entertainment, the dangers of losing their jobs have had people look for alternative ways to earn money from their homes, making it important to find online casinos that pay real money, as online casinos have been leaning towards paying out their clients in cryptocurrencies, further contributing to their gain of fame.
Especially now, since countries have closed their borders and businesses have shut down, it’s starting to have an impact on the world economy, causing people to lean towards digital cryptocurrencies. Bitcoin was originally heading towards a slump but managed to catch itself before crossing the $4,800 threshold and has been on the rise ever since.
As a result, short-selling has been on the radar for many of the EU regulators. Certain firms are contemplating on the implementation of a ban for it, such as the FCA making a statement on their position about the subject.
While others have already started to take a stand against.
The Financial Services and Markets Authority
The Financial Services and Markets Authority (FSMA), the main financial regulatory body in Belgium that regulates businesses involved in financial services, announced on Wednesday that it had officially banned the entrance into short sales which might constitute or increase a net short position on stocks admitted to trading to Belgian trading venues.
Specifically speaking, the ban includes any transactions that create or can relate to a financial instrument, where the effect or effects of that transaction is granting a financial advantage over the natural and/or legal person in the case of a decrease in the value of another financial instrument and will be in effect for a month, between 18th of March and 17th of April.
The Austrian Financial Market Authority
The Austrian Financial Market Authority (FMA) is an independent, autonomous and integrated authority for the Austrian financial market and no stranger to restricting short-selling either. The FMA called for a ban on Thursday, which will be in effect for roughly the same period of time, ending sooner if needed.
Helmut Ettl and Eduard Müller, the Executive Directors of the FMA, made comments on the situation, stating that without this action, speculative short selling could lead to significance in the already volatile markets that we currently have, be it Austrian or global.
Furthermore, they make sure to emphasize on the importance of maintaining the stability and confidence of investors in the orderly function of the markets, thus insinuating the inevitability of their action.
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