UK may win EU short-selling battle

Britain has secured an important legal concession in its fight with EU regulators over the do's and don'ts of shorting.

by Andrew Saunders
Last Updated: 12 Sep 2013
EU court advocate general Niilo Jasskinen has given a preliminary opinion on the case, currently on its way through the European Courts of Justice. He says:

‘The emergency powers granted by that article to the European Securities and Markets Authority to intervene in the financial markets of member states so as to regulate or prohibit short selling go beyond what could be legitimately adopted as a harmonising measure necessary for the establishment or functioning of the internal market.’

Not the most scintillating paragraph you will read today, but significant all the same. The article he refers to, you may recall, is the one enacting the controversial and complicated short-selling rules introduced by the European Securities and Markets Authority back in November last year. These required in effect that market regulator ESMA be notified of any short positions above a certain value in specific EU listed bank or sovereign bonds.

Notwithstanding the rights and wrongs of short-selling (of which plenty has been written already), City traders have complained bitterly and with justification that the rules are over over-complicated, unclear and ill-thought out, and that guidance from ESMA supposed to help clarify things has simply muddied the waters even further. In short, that they amount to a restraint of trade and that the EU has overstepped its authority, specifically because the regulator is empowered to overrule a sovereign state and impose a ban against its will.

Nevertheless, the legal challenge launched by the Treasury against the rules was a risky move, so the mandarins will be breathing at least a partial sigh of relief that Jasskinen seems to agree with the main thrust of its argument, that the EU has exceeded its powers.

Before the Square Mile gets too carried away with the scent of victory, it’s important to note that this is just an opinion, albeit an influential one. Jaaskinen is recommending to the presiding ECJ judges that they should strike down the rules, and the court follows such opinions in most cases.

But the judges are not legally obliged to listen to him, so this long-running scrap over short-selling may go on for a while yet…

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