EU Plans Bloc-Wide Short-Selling Policy

Sep 2 2010 | 12:14pm ET

The European Union is poised to harmonize its short-selling policies by empowering a newly-created bloc-wide regulator to temporarily ban “abusive” and naked short-selling.

Under the proposal, due to be introduced by EU internal markets chief Michel Barnier on Sept. 15, the new European Securities and Markets Authority will receive emergency powers to ban short-selling for up to three months at a time. The bans would be renewable for three-month periods, as well.

ESMA, set to come into existence in January, would also be permitted to overrule financial regulators in individual EU countries.

“The regulation aims at addressing the identified risks without unduly detracting from the benefits that short-selling provides to the quality and efficiency of markets,” the draft law says, according to Reuters.

The hedge fund industry offered mixed praise to the measure, with the Alternative Investment Management Association lauding the harmonization while decrying the ban.

“The crisis experience has shown that imposing such bans does little to calm a market panic,” CEO Andrew Baker said.

Meanwhile, a new survey shows that Britain—home to the overwhelming majority of the European alternative investments industry—is intractably opposed to new measures empowering EU financial regulators. According to Greenwich Associates, nine out of 10 British corporations, asset managers and pension funds are opposed to giving further regulatory powers to Brussels. Financial players in France and Germany, by contrast, support the moves.

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