LONDON/PARIS — Stock market regulators in the two European countries hardest hit by the coronavirus, Italy and Spain, on Monday imposed bans on short-selling as the European Union’s markets watchdog warned that the current stocks slump could last weeks.

In short-selling, traders borrow a company stock with a view to selling it, hoping to buy it back later at a lower price and pocket the difference, a practice that often exacerbates market moves amid panic selling.

Spain’s CNMV regulator banned transactions with Spanish shares involving the creation and increase in net short positions for a month starting on Tuesday. The prohibition, which is extendable, covers short-selling even when such deals are covered by a securities loan, it said.

It first imposed a one-day short-selling curb on Friday, but stock indexes on Monday continued their slide.

Spain’s leading index Ibex-35 and Italy’s blue-chip index FTSE MIB have fallen around 40% in the past month.

Italy’s Consob introduced a new 24-hour short-selling ban as the Milan bourse continued to slide, and kicked off a procedure that will allow it to adopt further restrictive measures, including a more lasting ban on short-selling if needed.

The ban will apply to 20 stocks on Tuesday and follows a similar measure taken by Consob on 85 stocks last Friday.

The European Securities and Markets Authority (ESMA) earlier lowered the threshold for reporting short-selling to regulators by hedge funds and other investors for the next three months, saying that current trading conditions posed a “serious threat” to “fragile” markets, but stopped short of banning such trades.

The tougher reporting requirement apply to trading positions as of close of trading on Monday, though ESMA said it would not limit the capacity of market participants to enter or increase short-selling positions.

“Such temporary restrictions on short selling … could not address the continuing threats as they are applicable for one trading day only,” ESMA said of last week’s Spanish and Italian measures.

It said its own “preliminary” step should help regulators get information about short-selling sooner and decide if further actions were needed.

“There is a clear risk that such downward trend will continue in the coming days and weeks,” ESMA added of the market sell-off triggered by the spread of the COVID-19 respiratory illness caused by the new coronavirus.

When the number of short-sellers outweighs those buying a stock, which could happen if investors rush to sell amid panic over coronavirus, that can further drive down the price of shares.

Under the new regime, short-sellers must report a transaction if their net short position reaches or exceeds 0.1% of the issued share capital, compared with 0.2% before Monday’s announcement.

“ESMA considers it appropriate that national competent authorities closely monitor the evolution of the market and any evolution of net short positions before considering adopting any further measure,” it added.

Under EU law, national authorities have the power to introduce such bans, but are required to inform ESMA.

Many countries curbed short-selling in the aftermath of the 2008 financial crisis. While such bans can soften the impact of a shock, experts say they only work for a limited time and have little impact on the overall market.

Despite “extraordinary losses” in shares since Feb. 20, markets have functioned in an orderly way, and the integrity of markets has been largely preserved, ESMA said. (Reporting by Huw Jones and Sudip Kar-Gupta, Elisa Anzolin and Valentina Za, Andrei Khalip and Jesus Aguado, editing by John O’Donnell and Mark Potter)

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