Germany bans Wirecard 'shorting' as prosecutors probe FT journalist

* Investors banned from new or raised short positions

* Bafin says Wirecard issue triggered 'massive uncertainty'

* First short-selling ban on individual stock in Germany

* Munich prosecutor investigates FT journalist

* FT says allegations "baseless and false"

* Wirecard shares gain 15 percent (Updates with data from IHS Markit, shares)

By Arno Schuetze

FRANKFURT, Feb 18 (Reuters) - Germany's financial watchdog has banned "short" selling of Wirecard shares due to volatility in the payments firm's stock following reports in the Financial Times which are now the subject of an investigation by German authorities.

Munich prosecutors said on Monday they were investigating a Financial Times journalist, confirming that they had widened a probe into a possible violation of securities trading rules.

The Financial Times (FT) rejected as "baseless and false" any allegations against the newspaper or its journalists of market manipulation or unethical reporting relating to Wirecard.

A spokeswoman for the Munich prosecutors said their inquiry, which was in response to a criminal complaint, was at an early stage and declined to give any further details.

Bafin, Germany's financial markets regulator, said the ban on "shorting" Wirecard was a first for an individual stock, although 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 London-based FT has published a series of reports alleging fraud and creative accounting at Wirecard, which the Munich-based firm has rejected as defamatory.

"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.

Shares in Wirecard, which provides payment processing services, gained 15.1 percent in Frankfurt, partly reversing a recent drop of 40 percent. Bafin said it had banned the taking or increasing of short positions until April 18.

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.

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

CONTAGION RISK

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

This has 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.

Data from IHS Markit show that at the end of last week, 12.8 percent of Wirecard shares were out on loan, which IHS Markit said was a proxy for short positions. That is up from just 3.5 percent at the beginning of February.

Regulatory filings show that one of the firms shorting Wirecard is Odey Asset Management, which had a short position against 0.77 percent of Wirecard stock as of Feb. 8.

"I find it very surprising that Bafin are willing to step in at this point in time," fund manager Crispin Odey said.

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 price moves constituted a serious threat to market confidence in Germany and posed the risk of contagion.

It added that historical volatility levels spiked to 99.1 percent on Feb. 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.

(Reporting by Riham Alkousaa, Arno Schuetze, Jörn Poltz, and Rachel Armstrong Additional reporting by Helen Reid, Maiya Keidan, Alex Hübner Editing by David Holmes/Alexander Smith/Jane Merriman)

First Published: 2019-02-18 08:52:17
Updated 2019-02-18 20:00:32


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