Speculators in Spain: over €6 billion in stock market short sales

Spanish regulator bans short selling of Liberbank stock following Banco Popular debacle last week

Hedge funds that practice short selling have short positions on 64 Spanish companies listed on the stock exchange, according to figures released by the stock market regulator, the CNMV.

The Madrid stock market.
The Madrid stock market.Emilio Naranjo / EFE

These short positions – in which an investor “borrows” shares, sells them at current market prices, and waits for the price to go down in order to buy them back and pocket the difference – represent a market value of over €6 billion in Spain. The figures reflect the end of the trading session on July 9 of last year.

The issue of short selling has made news following Banco Popular’s rescue last week by the European Union’s Single Resolution Board. The Spanish bank’s shares had been dropping for days, and at the time of its sale to Santander, 9.7% of its capital was shorted.

The regulator is trying to prevent a run on deposits similar to the one that brought Banco Popular to the brink of collapse

On Monday, the CNMV announced that it was banning short sales on Liberbank shares for a month. The bank has lost around 44% of its stock value in the last 10 trading sessions.

The market regulator is trying to prevent a run on deposits similar to the one that brought Banco Popular to the brink of collapse. The CNMV feels that the speculative trading with Liberbank stock is related to the Popular debacle, and does not reflect the lender’s real financial state.

Shares in Liberbank jumped 41.2% after the decision. Sources at the CNMV said that the ban on short selling only affects Liberbank – even though other companies are also under pressure from short sellers – because it is a bank, meaning that trading fluctuations carry a greater risk to its operations if it triggers a panic among deposit holders.

But the same sources denied that they are trying to protect the Spanish financial system from speculators, and ruled out extending the ban to stock in other lenders.

“The main goal of the measure is not to prevent an imminent risk to the entire banking system, but to avoid market distrust in Liberbank.”

Popular shareholders have lost all their investments following the Santander takeover.

English version by Susana Urra.

More information