Naked short selling banned in the Netherlands

Naked short selling has been banned in the Netherlands and in other countries in the Euronext stock exchange group.

Short selling, the practice of borrowing shares to sell on the expectation that the price will drop, has been banned in the US, Britain and Germany since last week. The current Dutch measure is not as far reaching and only prohibits naked short selling. Naked shorting is a type of short selling where investors don't borrow the shares but do speculate on their decline in value.

Dutch finance minister Wouter Bos announced the ban on Sunday. He hopes that the regulation of traders who try to profit from the financial crisis by betting against shares will help bring stability to the turbulent financial markets.

Bos called the Dutch restriction, which will last for at least three months, a "strong measure". He said: "We don't want to give speculators any room to further reduce share prices when that decline does not represent the real situation of that company."

Fortis' financial health

Without naming any companies, the minister spoke of "vulnerable institutions, especially financial ones," which have been damaged by short sellers. Dutch financial market authority AFM is to oversee the ban. Its list of shares covered by the measure only includes financial institutions, banks and insurance companies.

Government regulators in different Western countries have held traders in shorts responsible for the steep drops on the financial markets last week.

Traders are said to have spread negative rumours about the financial health of certain companies, such as the Belgium-Dutch bank Fortis. Fortis' value took a much bigger hit than other financials on Wednesday after rumours that it was poised to mount a new share issue.