A number of hedge funds, including Greenlight Capital, SAC Capital, Glenview Capital, Tiger Asia, and Perry Capital, lost billions of Euros in a few hours based on their large short positions in Volkswagen's stock following the news on October 26, 2008, that Porsche AG had obtained a large long synthetic position in Volkswagen stock through cash-settled options. This was not the only large bet against that company's stock. He was known in Germany as a savvy investor, but had lost hundreds of millions of Euros after being caught on the wrong side of a short squeeze of epic proportions involving Volkswagen stock. It was no secret that the recent financial crisis had taken a toll on Merckle's investments. That night their fears were confirmed when a German railway worker located Merckle's body near a commuter train line near his hometown of Blaubeuren, about a hundred miles west of Munich.
Moreover, the article discusses the solution offered by the ECtHR to the trade-off between efficiency and fairness in administrative proceedings and proposes an allocation of prosecution and decision-making to independent bodies within the same supervisory authority as a means to better balance efficiency and fairness.įamily members knew something was very wrong when Adolf Merckle, who had guided the family holding company, VEM Vermogensverwaltung GmbH, through dozens of successful investments, left the house one afternoon in January 2009 and failed to return. This article criticizes the decision to criminalize market abuse at the EU level and argues that a credible EU supervisory system is better served by an enforcement system based on administrative sanctions. In the light of a few cases decided by the Court of Justice of the European Union and the European Court of Human Rights (‘ECtHR’), the features of this regime are, however, unclear, and it is doubtful whether the current framework is adequate to achieve its goals. 596/2014 (‘MAR’) and Directive 2014/57/EU (‘MAD II’) relies on a mix of criminal penalties and administrative sanctions, both of which are subject to the principles of double jeopardy and due process. Overall, short-selling bans during the Covid-19 crisis negatively affected market quality and consequently regulators in general should abstain from implementing such restrictions in the future.Īimed at establishing an effective and consistent enforcement of market abuse regulation, the regime introduced by Regulation (EU) No. The results suggest that countries with weaker economies, lower fiscal capacity, less financial development, and stricter lockdown measures were more likely to adopt a ban.
Using logit regressions, we investigate the determinants for the probability that a country would impose short-selling restrictions. In addition, smaller stock markets and smaller firms suffered more from the deterioration in market quality. Our results reveal that restricting short selling did not stabilize stock prices but adversely affected market liquidity, as reflected in wider bid-ask spreads and lower turnover. We examine the effects of these regulatory interventions on stock returns and market quality for major European countries with and without bans. In March 2020, six European countries imposed temporary short-selling bans to prevent further stock price declines, to reduce volatility, and to ensure financial stability during the Covid-19 pandemic, whereas other countries abstained from implementing these restrictions.
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