Divided we stand, united we fall
from Fidessa : Steve Grob - 31st December 1969
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To say that it has been a turbulent time in global equities markets is something of an understatement, but the European picture provides some interesting pointers to the bigger geopolitical debate that's going on. A couple of events in particular caught my attention. First, there was the ban on short-selling in banking stocks imposed by France, Italy, Spain and Belgium and the backlash that followed. Then came France's abortive attempt to extend the short-selling ban to major European indices. The initial ban was easy to sidestep as these stocks are now traded very much on a pan-European basis and so any country-specific ban just pushes trading onto platforms operated in other countries, as the chart below illustrates. Traders can still take a negative position on markets through futures, options and CFDs too.
On top of this was the chatter coming out of Europe about imposing some sort of Tobin tax on financial transactions. Again, all this served to do was highlight the possibilities for regulatory arbitrage. It would be just too tempting for one European state to create a tax free trading zone and so hoover up all the available liquidity.
Both of these events highlight the broader European problem: its member states must either get closer together or move further apart. The current debt crises surrounding Greece and other nations seem unlikely to be permanently resolved until this happens. And, similarly, we need ESMA to either really show its teeth and impose one set of rules for European trading or leave it to each country regulator to make its own rules. In both cases the 'getting closer' option imposes some tough political choices and a requirement to put short-term national self-interest to one side. The alternative 'go it alone' strategy looks scarier still, but maybe either is better than the current status quo.