LDN - Business

Germany's Bafin bans Wirecard 'short' positions over volatility

[February 18, 2019] By Arno Schuetze

FRANKFURT (Reuters) - Germany's financial watchdog has banned "short" selling of Wirecard shares after reports in the Financial Times sparked recent volatility in the payments firm's stock.

Bafin said the ban was its first such ban for an individual stock, though it outlawed shorting of bank shares in 2008. Short selling is when an investor borrows shares to sell in the hope of being able to buy them back later at a lower price.

"The last few days have seen massive uncertainty in financial markets. This was triggered in particular by the price development of the Wirecard AG share in recent weeks", Bafin said in a statement on Monday.

Shares in Munich-based Wirecard, which provides payment processing services, gained 14 percent, partly reversing a recent drop of 40 percent after Bafin said it had banned investors from establishing or increasing short positions on the member of the blue-chip DAX index until April 18.

The FT has published a series of reports alleging fraud and creative accounting at Wirecard, which it has rejected as defamatory, saying it would sue the London-based newspaper.

Also on Monday, Germany's Frankfurter Allgemeine Zeitung newspaper reported that German authorities have opened an investigation into a Financial Times journalist over the reports concerning Wirecard.

The Financial Times had no immediate comment on the report, which said the Munich prosecutor's office is investigating a possible violation of securities trading rules. The prosecutors office also had no immediate comment.

"We welcome all measures of the supervisory authorities that contribute to a quick clarification", a Wirecard spokesman said.

Bafin said Wirecard had been the subject of negative reports between 2008 and 2016 and again since late January.

"The press reports have coincided with increased net short positions", Bafin said, adding that the short positions were held by various investors, especially from abroad, often below the publication threshold.

RISK OF CONTAGION

Wirecard, founded in 1999, has been a perennial target for speculative short sellers who have questioned its accounting methods and rapid international expansion.

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People walk past the Wirecard booth at the computer games fair Gamescom in Cologne, Germany, August 22, 2018. REUTERS/Wolfgang Rattay

These attacks have caused huge volatility in Wirecard's stock, though its share price has rebounded repeatedly, with the company last year entering the blue-chip DAX index.

"In recent days, there has been a further substantial increase in the net short positions", Bafin said, adding that the events had created market uncertainty, particularly over the appropriate price determination for Wirecard shares.

Investors must notify Bafin once their short position exceeds 0.2 percent and those holding more than 0.5 percent are obliged to publish this information.

In 2012 the European Union banned so-called naked short selling, shorting securities without first borrowing a stock, alleging shortsellers were aggravating the financial crisis.

The European Securities and Markets Authority (ESMA) said that the Wirecard share price moves constituted a serious threat to market confidence in Germany and posed the risk of contagion to other DAX stocks.

It added that historical volatility levels spiked to 99.1 percent on February 8, compared to 49.1 percent on January 29.

Traders were not convinced the ban would work.

"Thinking back to other short sell bans elsewhere, it rarely has the desired effect," Mark Taylor, a sales trader at Mirabaud Securities, said, adding that some short sellers would likely just wait for the ban to lift, while others would "keep the core idea short" and refrain from buying the stock.

(Reporting by Riham Alkousaa and Arno Schuetze; Additional reporting by Helen Reid, Alex Hübner, Jörn Poltz; Editing by David Holmes and Alexander Smith)

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