In early August, financial regulators from five European countries issued orders temporarily banning short sales of shares of certain financial industry issuers in response to extraordinary volatility in the financial markets, and in particular to the sharp declines in the value of many European bank stocks. France, Spain, Belgium and Italy each issued short-selling bans, which have similar features. Each of these bans, except for Belgium’s, is temporary and initially was in effect for 15 days from the date the order was issued. However, the bans have been renewed so that short selling will not be permitted in Italy and Spain until after September 30, 2011. The ban in France could last as long as November 11, 2011. Belgium’s ban will apply for an indefinite period. In addition to these coordinated bans, Greece reintroduced a ban on short-selling of shares listed on the Athens Exchange. The Greek ban is scheduled to expire October 7, 2011.

The Spanish ban forbids investors from entering into any transaction which might constitute or increase a net short position on sixteen enumerated Spanish financial stocks. The ban covers trades on equities or indices, including cash equities transactions, derivatives in regulated markets or OTC derivatives. Positions arising from market making activities are exempted from ban. The ban generally describes such market making activities as the activities of investment firms involved in transitory or intraday net short positions for the purpose of either hedging client orders or providing quotes for bid and ask prices on a continuous basis.

The French ban forbids the creation of any new net short position and forbids investors from increasing any existing net short position in the equity shares or securities of ten French financial industry issuers. When calculating a net short position for these purposes, derivatives contracts should be included but borrowed or loaned securities should not. The ban does not apply to financial intermediaries acting as market makers or liquidity providers. The French regulator has clarified that “marginal” net short positions in securities of such issuers through index derivatives are generally not prohibited by the French ban, if such index derivatives are used to hedge general market risk of investing in equities.

Under the Italian order, investors are prohibited from taking new net short positions or increasing existing net short positions with respect to shares of 29 issuers listed on the Italian regulatory authority’s website. According to an FAQ released by the Italian regulator, the calculation of a net short position must include all types of financial instruments whose value is linked to the values of the shares of a given issuer, and lists ETFs, ADRs, options, swaps, futures and contracts for differences. Similar to the Spanish ban, the Italian ban does not apply to market makers or specialists. The Italian regulator has issued guidance similar to the guidance issued by the French regulatory with respect to index derivatives.

Belgium, which had previously banned naked shorting of the shares of four enumerated financial issuers, extended the regulatory definition of “uncovered transactions” so that coverage with borrowed shares is no longer considered “full coverage.” As a result, covered shorting is now prohibited. Existing net economic short positions are not covered by the Belgian ban, but such positions may not be increased.

Greece’s ban is an absolute ban which applies to all shares listed in the Athens Exchange regardless of the venue where a transaction is executed (e.g., regulated markets, multilateral trading facilities or over-the-counter) and applies to both naked and covered short sales, including sales which are settled with subsequent intraday purchases. The ban provides an exemption for certain registered market makers and does not prohibit market participants from obtaining or increasing short exposure through listed or over-the-counter derivatives.