News

European Parliament has voted during its plenary session of 15 November 2011 in favour of the Commission proposal relative to short selling and certain aspects of credit default swap, subject to some amendments.

The original proposal from the Commission sought to address several issues in relation to the use of short selling and credit default swaps, a matter which is currently not regulated in the European Union in a coherent way.

Indeed, although the Commission acknowledges that short selling may have positive effects on the EU market namely increasing financial markets efficiency by getting the full picture about a company revealed in its stock price, in these times of financial crisis, the practice of using short selling has been blamed for increasing recent market instability. In particular, most recent concerns related to the speculation on certain EU member state's sovereign debts. CDS (credit default swaps) are indeed largely used by speculators in that regard leading to declines in share prices of banks and financial institutions.

The purpose of the Commission is therefore to regulate the use of short-selling activities in the European Union with the aim of increasing transparency of financial markets, reducing the scope of arbitrage on sovereign debts, avoiding risk of negative price spirals and more generally ensure a uniformity and coordination between the Member States and the ESMA (the European Securities Market Authority).

The Council is now expected to approve the amendments to the Regulation made by the European Parliament prior to the publication in the Official Journal. European press release anticipates that such publication should take place by 1 January 2012.

As for the entry into force of the Regulation, the text adopted by European Parliament provides for the Regulation to apply from 1 November 2012. It is nevertheless likely that the date it will come into effect will be 12 months after approval by the Council.

More information:

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2010:0482:FIN:EN:PDF
http://ec.europa.eu/internal_market/securities/docs/short_selling/20100915_impact_assessment_en.pdf
http://www.europarl.europa.eu/news/en/headlines/content/20111107FCS30711/7/html/Parliament-seals-ban-on-sovereign-debt-speculation-and-short-selling-limitations