Short order

18 May 2010 By Peter Thal Larsen Follow @Peter_TL

The plan to stop naked shorting of some financial stocks and European government bonds and CDS may score political points. But it sows confusion while not tackling the causes of Europe s financial woes. Besides, it s hard to see what Germany can achieve by acting alone.

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Germany plans to ban naked shortselling in shares of the country's 10 most important financial institutions, a spokesman for the Finance Ministry said on May 18.

The ban on naked shortselling will also apply to credit default swaps (CDS) on euro government bonds, as well as euro government bonds themselves. "The ban takes effect at midnight," the spokesman said.

Bafin, Germany's financial watchdog, said the ban would take effect from May 19 and last until March 31, 2011. The ban covers the stocks of Aareal Bank, Allianz, Commerzbank, Deutsche Bank, Deutsche Boerse, Deutsche Postbank, Generali Deutschland, Hannover Re, MLP, and Munich Re.

The news weighed on jittery financial markets, with the already battered euro trading down 1.5 percent and just above $1.22 in afternoon trade. Kneejerk buying of Treasuries by investors seeking safer havens pushed the yield on the 10year bond down 0.1 percentage point to 3.39 percent. U.S. stocks, meanwhile, also traded lower with U.S. bank shares down between 1.53.5 percent.

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