NEWS

The EU Commission began its “public consultation” process by releasing its paper setting out the purpose and scope of standalone legislation to address potential risks from short selling.

The paper groups policy options into three types:
• Rules to increase transparency related to short sales
• Rules to reduce risks of uncovered short selling
• Emergency powers for competent authorities to impose temporary short selling
restrictions (subject to coordination by the European Securities Markets Authority).

The intention is that the new measures on short selling should:
• Harmonize rules across the EU relating to short selling;
• Harmonize tools that member-states may use in an emergency situation;
• Facilitate coordination between member-states and by ESMA in emergency situations

As the Wall Street Journal ( “EU Shapes Market Rules” by Stephen Fidler) reports, “one of the goals of the proposals is to unify regulation across the 27-nation EU, where a patchwork of different rules apply that provide opportunities for firms to seek out the weakest regime.

“For example, 11 countries require disclosure of short selling, six countries have introduced some bars on naked short selling—selling shares with the intention of buying them back later when the price falls, but without prior arrangements to borrow the shares to be sold. Denmark, France and Ireland ban short selling of some financial shares, while Greece bans short-selling entirely.”

The Commission also released a report on credit default swaps.