Economy & Politics

ExclusiveMassive doubts about the Wirecard short sale ban

The financial supervisory authority Bafin came to Wirecard’s aid in February 2019 with a short sale ban. The authority saw the group as a victim of a “short attack”imago images / Schöning

How important the decisions of the financial supervisory authority were to give Wirecard air to the end can be heard again and again when the Bundestag investigative committee questions witnesses. This applies above all to the ban on the short sale of Wirecard shares, which Bafin imposed in mid-February 2019 – a market intervention that is unique in the history of the German stock market for a single share in order to prevent speculation.

The ban on short selling, a senior official from the Supervisory Authority for Auditors (APAS) reported to MPs at the beginning of December, had also “influenced” the line taken by his authority. Because someone checked the situation “and came to a conclusion” – namely that Wirecard was the victim of a “short attack” by lee salesmen and the media. So APAS was also reassured.

It sounded similar last week with the former Minister of Economics, Karl-Theodor zu Guttenberg, who advised Wirecard with his company Spitzberg Partners and cleaned handles in German politics. Guttenberg summarized the line of defense of ex-CEO Markus Braun against all allegations that the British “Financial Times” and other critics regularly raised as follows: “The bad shortsellers, the good Bafin, the good public prosecutor”.

The ex-minister said that the CEO always presented this to him. Braun’s message: If the authorities see no reason to take action against us, but instead, as in the case of the ban on short selling by the financial supervisory authority, even protect us, then we have to be absolutely clean. Not only Guttenberg, also countless investors were blinded by this story.

But in the meantime, according to research by, there are great doubts as to whether the short sale ban of the Bafin, which also caused a stir abroad and strongly supported the share price of the group, even came about perfectly. For example, in an internal analysis of the market data, the Deutsche Bundesbank came to the conclusion that the reasons given by the financial supervisory authority, according to which Wirecard shares pose a threat to the market as a whole, were not in fact relevant.

“The short sale ban of the Bafin was apparently knitted with a very hot needle and is legally on very shaky feet when viewed today,” said the member of the Bundestag Danyal Bayaz, who sits on the Wirecard investigation committee for the Greens. The committee must now clarify how this came about and who is responsible.

According to the EU Short Selling Regulation, supervisory authorities are only allowed to temporarily limit investors’ bets on falling prices in two cases: if there is a threat to general financial stability or if market confidence is jeopardized. In its general decree published on February 18, 2019 for the ban on building up new net short positions or increasing existing ones, the financial supervisory authority justified its decision with the threat of a disruption of market confidence as a result of developments at Wirecard. The share price fluctuated sharply since the end of January – as a result of several “FT” reports that revealed irregularities at the Asian subsidiary of the payment group in Singapore.

In its ruling, the Bafin argued that “excessive price movements” of Wirecard shares “could cause the loss of market confidence in Germany, particularly with regard to pricing in the markets, due to their trend-enhancing effect”. The supervisory authority pointed out that high short positions had been built up around the reports. These “unfavorable developments” could pose a “serious threat to market confidence” and cause “another significant downward spiral in price”. In other words: Bafin feared that the Wirecard share’s capers would sweep the entire market away.

But even before the ban on short sales came into force, the intervention met with great concerns at another authority responsible for ensuring financial stability in Germany: the Bundesbank. On February 15, 2019, a speaker from the economics department wrote a brief but critical note. Basically, from a regulatory point of view, a “noticeable skepticism” about the restriction of short sales is appropriate, he stated – especially because it “is often unclear whether the necessary conditions for this (…) are met”.

Large price losses and high volatility of a share could “not automatically be taken as a sign of a fundamentally unjustified development,” wrote the proven expert on capital movements and capital markets. In addition, there is a risk that such interventions could increase uncertainty among investors.

On the other hand, it appears “doubtful” that they will be able to support share prices in the short or long term. With a view to Wirecard, the Bundesbank expert formulated that even in the case of targeted price manipulation it should be “critically examined” whether a short-selling ban is proportionate, as it potentially affects many market participants. His conclusion: “A targeted approach against manipulators would be preferable” – a point of view that is also shared by capital market experts.

There was no “general market disruption”

Less than two weeks later, the same Bundesbanker dealt with the issue again – although the Bafin short-selling ban had long since come into force at this point. In a note dated February 27, 2019, which has received, the specialist investigated the question of how much “the uncertainty about Wirecard” radiated across the entire German stock market at the time. So he examined the decisive argument with which the financial regulator had justified its market intervention.

For his analysis, the Bundesbanker examined the statistical relationships between the developments in Wirecard shares and 26 other DAX values. Result: The uncertainty at Wirecard was “at least partially” carried over to the other Dax values ​​- more than in a similar case in 2016, when Wirecard and Bafin had sensed a “short attack” by speculators in the case of the so-called Zatarra report.

Nonetheless, according to the expert, the volatility of the overall market in February 2019 was “close to its average value” because below-average covariances between the other Dax shares during this time would have offset the “spill-over effect” of Wirecard shares.

The conclusion of the capital market expert: “As a result, neither an unusually strong, aligned investor behavior nor a general market disruption can be proven for the overall market.” A finding that refutes the legal justification of the Bafin for its intervention in retrospect.


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