Germany will ban naked short-selling in shares of the country's 10 most important financial institutions as well as credit default swaps on euro government bonds, a Finance Ministry spokesman said Tuesday.
The ban takes effect at midnight and will run through March 31 next year, the spokesman said.
In naked short selling, a trader sells a financial instrument short, betting that it will fall, without first borrowing the instrument or ensuring that it can be borrowed, as would be done in a conventional short sale.
Credit default swaps are a type of insurance against a borrower going bankrupt that have become a lucrative market for traders.
In announcing the ban, the German Finance Ministry cited the "extraordinary volatility" currently afflicting eurozone countries' debt certificates.
"Hey Zandar, can you translate that into English?"
Sure. Germany just took the high-stakes roulette wheel out of the casino, the one where the traders were making the really, really big bucks betting that things would fail. Since Germany no longer has the really shiny Big Money Wheel after midnight tonight, everybody's trying to cash out of Zee German Casino here in the next couple hours and take their money down the street to where the odds are better (and so is the buffet.)
Now, you don't do this kind of thing on an idle Tuesday unless Wednesday there's some really horrible, horrible news coming that would make everybody want to go berserk playing the Naked Short Selling Musical Chairs game. In other words, Somebody Knows Something. That Something is Bad.
Dow down over 100, Euro at $1.22 and falling.
PS, America did this only after Lehman exploded, and we allowed naked shorting again after several months. For Germany to just up and do this out of nowhere in the middle of the trading week is one of those things that makes traders real nervous.
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