Volatility a major concern, Greece prepares to lift the short selling ban as per schedule
By Troy Kuhn, bidnessetc.com
A lot of positivity surrounds Greek banks as they recapitalize and one important element could play considerable havoc with market values. The short selling ban, extended earlier in October is set to expire on November 9. The ban was imposed to limit downward pressure on banking stocks.
Short sellers bet on a potential dip in the price of a security in the near future. Given that a dip does in fact occur, the security can be bought back at a much lower price in the future and allow the short seller to bank a profit. The flipside of this theory rests in the downward pressure that is imposed on the price of a security. Excessive short sales stir significant bearish momentum and pull the price of a security further down. This will enable a short seller to grab a much higher profit, which will cripple the market value of security.
In a time of crisis, securities make a steep plunge. It was evident during financial crisis in 2008, and more recently in the Greek debt saga. As Greek banking stocks continued to plunge on the back of negative sentiment, regulators hastened to save what was left of market values. The short selling ban was first placed on June 29 when capital controls were imposed in the country. It was later extended to safeguard banking stocks from volatility ahead of recapitalization.
Greek banks have set the recapitalization process into motion already. However, much needs to be done before investors regain faith in the crippled banking sector. Once the short selling ban is lifted, banking stocks in Greece are likely to come under substantial pressure and display volatility in trading session.
While banking stocks enter volatile space with the expiration of the short selling ban, other equities listed on the Athens Stock Exchange might come under downward pressure. The trickle-down effect could play a pivotal role to shape the trade for the Athens Stock Exchange index on Monday. If Greece’s mainland index enters troubled territory, the global markets could display sensitivity to movements of Greek markets.
Either way, Monday’s trade will be on a close watch with a significant acceleration in speculative behavior.
The National Bank of Greece (ADR) (NYSE:NBG) stock listed that the US market has displayed volatile movements recently. The extension of the short selling ban in October has caused the stock to regain momentum, which closed at $1. The stock made consistent gains and defied the plunge in the S&P 500 Index to rise substantially above it. As Greece prepares to shed the limitations of the short selling ban, National Bank of Greece stock has become considerably volatile with its movements, reversing the bullish trend that was witnessed earlier.
National Bank of Greece stock’s performance in the past five days shows subsequent dips. As of Thursday’s close, the bank has cut more than 21% of its market value. The trading volumes have gone significantly high above the 30-day average of 9.58 million.
The stock opened again in the red today. However, shares are up 5.45% at $0.662 as of 11:15 AM EST today.
