The European Commission has proposed radical curbs on short selling and derivatives trading in a bid to bring the multi-trillion dollar market in from “Wild West territory”.
If approved, the plans would require traders to declare all ‘short’ positions to a central database, impose a common EU-standard on all derivative products and create a new regulator to monitor the burgeoning sector.
Michel Barnier, the combative single market commissioner, said on Wednesday the overhaul of over-the-counter - or off-market - trading was vital for the future stability of Europe’s financial system.
He said: “OTC derivatives have a big impact on the real economy: from mortgages to food prices. The absence of any regulatory framework for OTC derivatives contributed to the financial crisis and the tremendous consequences we are all suffering from.
“No financial market can afford to remain a Wild West territory,” he said.
Derivatives, once described by Warren Buffett, the billionaire investor as “financial weapons of mass destruction”, were widely blamed for triggering panic after the collapse of Lehman Brothers in 2008.
More recently politicians blamed anonymous short-sellers and derivatives traders for exacerbating the sovereign debt crisis in Greece, with Germany banning so-called "naked" short-selling in May.
Around 40pc of the global derivatives trade is conducted in the City of London, according to the British ambassador to the EU.
In a statement the Commission said it’s objective was to create a “harmonised framework” of regulations for the whole of Europe and to “increase transparency and reduce risks”.
The measures include proposals to:
• Restrictions on ‘naked short-selling’. Traders will be required to show they have borrowed, or arranged to cover, an instrument before shorting it.
• Standardise powers to all national regulators to ban short-selling for a day or longer. The new super-regulator, the European Securities and Markets Authority (ESMA), would also have powers to suspend short-selling on financial instruments.
• Require all short trades to be marked or ‘flagged’ on share-orders for regulators to monitor. Plus short positions of over 0.2pc of company must be declared to the regulator; and over 0.5pc declared to the market.
• Tighten OTC market with mandatory reporting of derivatives to a central data base to which national regulators will have access; a clearing system of central counterparties that will ensure that buyers are matched with sellers; and tougher rules on risk management.
The rules on transparency and standardisation were welcomed in London, where the majority of Europe’s hedge funds and derivatives traders are based. (AtW's comment:
)
However, Andrew Baker of the Alternative Investment Management Assocition (AIMA), said some proposals went too far.
He said: “We do hope however that new powers to ban short selling are never used. Such bans have never worked, and indeed all the evidence is that the shorting bans during the crisis made the situation even worse.
"And while we support increased transparency in the field of short-selling, we think short position reporting by individual firms should be only to the regulator.”
The EU's proposed legislation comes after tough changes announced in the United States.
On Sunday, world economic powers also agreed on a new base framework for the amount of capital the commercial banks must hold to help avert any new financial crisis.
That decision, and Wednesday's announcement, are the latest steps in a series of moves at the EU, US and global level to set out new rules for banks, financial markets and regulators in response to the chaos and public outrage caused by the financial crisis.
The new rules foresee an oversight role for the pan-European financial supervisors that are scheduled to being operating on January 1 following approval by the European parliament.
Source: EU plans curbs on short selling, derivatives - Telegraph
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About time they did it - very long jail sentences to anybody who so much as thinks to violate the spirit if rules prohibiting tulip like short selling.
If approved, the plans would require traders to declare all ‘short’ positions to a central database, impose a common EU-standard on all derivative products and create a new regulator to monitor the burgeoning sector.
Michel Barnier, the combative single market commissioner, said on Wednesday the overhaul of over-the-counter - or off-market - trading was vital for the future stability of Europe’s financial system.
He said: “OTC derivatives have a big impact on the real economy: from mortgages to food prices. The absence of any regulatory framework for OTC derivatives contributed to the financial crisis and the tremendous consequences we are all suffering from.
“No financial market can afford to remain a Wild West territory,” he said.
Derivatives, once described by Warren Buffett, the billionaire investor as “financial weapons of mass destruction”, were widely blamed for triggering panic after the collapse of Lehman Brothers in 2008.
More recently politicians blamed anonymous short-sellers and derivatives traders for exacerbating the sovereign debt crisis in Greece, with Germany banning so-called "naked" short-selling in May.
Around 40pc of the global derivatives trade is conducted in the City of London, according to the British ambassador to the EU.
In a statement the Commission said it’s objective was to create a “harmonised framework” of regulations for the whole of Europe and to “increase transparency and reduce risks”.
The measures include proposals to:
• Restrictions on ‘naked short-selling’. Traders will be required to show they have borrowed, or arranged to cover, an instrument before shorting it.
• Standardise powers to all national regulators to ban short-selling for a day or longer. The new super-regulator, the European Securities and Markets Authority (ESMA), would also have powers to suspend short-selling on financial instruments.
• Require all short trades to be marked or ‘flagged’ on share-orders for regulators to monitor. Plus short positions of over 0.2pc of company must be declared to the regulator; and over 0.5pc declared to the market.
• Tighten OTC market with mandatory reporting of derivatives to a central data base to which national regulators will have access; a clearing system of central counterparties that will ensure that buyers are matched with sellers; and tougher rules on risk management.
The rules on transparency and standardisation were welcomed in London, where the majority of Europe’s hedge funds and derivatives traders are based. (AtW's comment:
)However, Andrew Baker of the Alternative Investment Management Assocition (AIMA), said some proposals went too far.
He said: “We do hope however that new powers to ban short selling are never used. Such bans have never worked, and indeed all the evidence is that the shorting bans during the crisis made the situation even worse.
"And while we support increased transparency in the field of short-selling, we think short position reporting by individual firms should be only to the regulator.”
The EU's proposed legislation comes after tough changes announced in the United States.
On Sunday, world economic powers also agreed on a new base framework for the amount of capital the commercial banks must hold to help avert any new financial crisis.
That decision, and Wednesday's announcement, are the latest steps in a series of moves at the EU, US and global level to set out new rules for banks, financial markets and regulators in response to the chaos and public outrage caused by the financial crisis.
The new rules foresee an oversight role for the pan-European financial supervisors that are scheduled to being operating on January 1 following approval by the European parliament.
Source: EU plans curbs on short selling, derivatives - Telegraph
------------
About time they did it - very long jail sentences to anybody who so much as thinks to violate the spirit if rules prohibiting tulip like short selling.
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