The Catalan employers’ association Foment del Treball calls for a change in European stock market regulation that allows short positions to be stopped, especially when interested information is disseminated to manipulate the market, as has happened in the attack that the Gotham City Research fund launched against Grifols.
Salvador Guillermo, director of economics of the employers’ association, explained that Foment has prepared a report in which it proposes the improvements that the stock market needs to be more efficient and avoid “inappropriate behavior.” The employers’ association considers that the obligation to notify short positions, which now only exists in Spain and Denmark, should be harmonized throughout Europe so that it affects all countries and the accumulated positions in all markets are communicated. The current situation, he noted, penalizes companies that are listed on the most transparent markets, since “it causes the sensation that there are more short positions.”
Foment also demands that the regulations specifically contemplate the possibility of prohibiting short-term operations in cases where a company is the victim of deliberate attacks to bring down its price, as happened in the Grifols case.
The report recognizes that currently national authorities can already prohibit these operations in situations of systemic risk, as happened during the pandemic or at various times in banking sector actions. These assumptions, in his opinion, should be expanded. Thus, he believes that shorts should be prohibited when they coincide with actions “with a very specific interest in bringing down the value of a security, and with information that is controlled” to produce the market overreaction.
For Foment, the regulations must provide for the possibility of the stock market authorities prohibiting shorts “on suspicion of serious and relevant alteration in the valuation of certain securities” to safeguard these companies from excess volatility, and “while waiting to be able to confront the relevant information”, so the period of one or two days that the regulations now provide for would have to be extended.
Foment recognizes the value of short operations to provide liquidity to the market, but points out that in cases of operations in which malicious information is disseminated, national authorities should have more discretion to prohibit short operations due to the reputational damage caused by the collapses that occur. The price suffers as a result of the panic generated by these operators.
