EU votes to ban short selling
08 March 2011 Brussells
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The European Parliament has voted to ban short selling in sovereign bonds and place restrictions on naked short selling.
The proposed rules would prohibit anyone from being involved in credit default swap (CDS) transactions if they do not already own sovereign debt linked to that CDS ("naked" CDS trading), or securities whose price depends heavily on the performance of the country, such as shares in a major company based there.
MEPs said they don't want to entirely ban naked short selling, but set a very tight deadline for converting a naked short sale into a short sale. By the end of the trading day, any naked short sales undertaken must have been converted. A seller failing to make the conversion on time would incur fines, which the amended text states, "must be sufficiently high to prohibit any profits being made".
Sellers must not only identify from where they plan to borrow the shares in question, but must also have a guarantee that they will indeed be able to borrow them when the time comes.
Further reporting requirements will be placed on investment firms, particularly in exceptional circumstances. The new regulations also allow national supervisory authorities to require lenders to notify them in exceptional situations. In emergencies, national authorities will be also required to provide more information within 24 hours to the European Securities and Markets Authority (ESMA), when requested.
On the other hand, the committee position only requires investment firms to report on their short sale transactions at the end of the trading day, rather than reporting each short sale as it happens, as proposed by the Commission. Investors would also be required to publically disclose less information than would have been required by the Commission's original proposal.
The regulation is expected to be in force in 2012
The proposed rules would prohibit anyone from being involved in credit default swap (CDS) transactions if they do not already own sovereign debt linked to that CDS ("naked" CDS trading), or securities whose price depends heavily on the performance of the country, such as shares in a major company based there.
MEPs said they don't want to entirely ban naked short selling, but set a very tight deadline for converting a naked short sale into a short sale. By the end of the trading day, any naked short sales undertaken must have been converted. A seller failing to make the conversion on time would incur fines, which the amended text states, "must be sufficiently high to prohibit any profits being made".
Sellers must not only identify from where they plan to borrow the shares in question, but must also have a guarantee that they will indeed be able to borrow them when the time comes.
Further reporting requirements will be placed on investment firms, particularly in exceptional circumstances. The new regulations also allow national supervisory authorities to require lenders to notify them in exceptional situations. In emergencies, national authorities will be also required to provide more information within 24 hours to the European Securities and Markets Authority (ESMA), when requested.
On the other hand, the committee position only requires investment firms to report on their short sale transactions at the end of the trading day, rather than reporting each short sale as it happens, as proposed by the Commission. Investors would also be required to publically disclose less information than would have been required by the Commission's original proposal.
The regulation is expected to be in force in 2012
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