Comment: EU ruling
10 March 2011 London
Image: Shutterstock
Data Explorers' Will Duff Gordon gives his views on the ruling on short selling from the European Union...
On Monday night the EU’s Economic and Monetary Affairs committee (ECON) debated and reached agreement (via a vote) on their short selling and CDS proposals. Leaving aside their desired CDS regime (in short preventing anyone from buying CDS for sovereign debt without owning the underlying bond) we can flag up that plans for public short selling disclosure have been dropped. But, they want the “locate” process speeded up.
This decision will be debated in a plenary session of Parliament before going back to the Council of Ministers for adoption. This is not a fait accomplit given the EU Commissioner for Finance (“short selling…wild west territory” fame) sits on the Council. The timing of the final decision is open ended. Other markets will be watching this closely as they wrestle with similar proposals. To quote the summary from ISLA, the specific issues for Securities Finance in the EU Parliament text are:-
Article 6 - Marking/reporting of short sales is required. These will need to be included in the transaction report at the end of the trading day and reported to competent authorities (but not disclosed publically).
Article 7 - Public disclosure shall take place at a threshold of 0.5 per cent (and 0.1 per cent after that) and disclosed anonymously. Proposals for adding ‘aggregated’ and upping the threshold to three per cent did not pass.
Article 12 - Keeps ‘located and reserved’ and the intra-day exemption.
Article 13 - Buy-in procedures is deleted from the text in article form and replaced by Recital 16
So, despite good news regarding the short selling disclosure it is “a little disappointing” that the Parliament went ahead with plans to make “pre-borrowing” stricter than the situation in the US. This will add further operational burden to participants and belies an understanding of how borrowing really works in a practical sense.
Finally, ISLA’s last word bears noting, “The ball is now in the Council's court and we will continue to do what we can to educate attaches. As things stand the Council appear to be heading towards a better position for uncovered short sales but are still pushing for named public disclosure.”
This issue will be discussed at the Data Explorers Securities Financing Forum that takes place in London on the 16th March. SLT is pleased to be Media Partner. There are still limited places available and you can sign up at www.dataexplorers.com/london
On Monday night the EU’s Economic and Monetary Affairs committee (ECON) debated and reached agreement (via a vote) on their short selling and CDS proposals. Leaving aside their desired CDS regime (in short preventing anyone from buying CDS for sovereign debt without owning the underlying bond) we can flag up that plans for public short selling disclosure have been dropped. But, they want the “locate” process speeded up.
This decision will be debated in a plenary session of Parliament before going back to the Council of Ministers for adoption. This is not a fait accomplit given the EU Commissioner for Finance (“short selling…wild west territory” fame) sits on the Council. The timing of the final decision is open ended. Other markets will be watching this closely as they wrestle with similar proposals. To quote the summary from ISLA, the specific issues for Securities Finance in the EU Parliament text are:-
Article 6 - Marking/reporting of short sales is required. These will need to be included in the transaction report at the end of the trading day and reported to competent authorities (but not disclosed publically).
Article 7 - Public disclosure shall take place at a threshold of 0.5 per cent (and 0.1 per cent after that) and disclosed anonymously. Proposals for adding ‘aggregated’ and upping the threshold to three per cent did not pass.
Article 12 - Keeps ‘located and reserved’ and the intra-day exemption.
Article 13 - Buy-in procedures is deleted from the text in article form and replaced by Recital 16
So, despite good news regarding the short selling disclosure it is “a little disappointing” that the Parliament went ahead with plans to make “pre-borrowing” stricter than the situation in the US. This will add further operational burden to participants and belies an understanding of how borrowing really works in a practical sense.
Finally, ISLA’s last word bears noting, “The ball is now in the Council's court and we will continue to do what we can to educate attaches. As things stand the Council appear to be heading towards a better position for uncovered short sales but are still pushing for named public disclosure.”
This issue will be discussed at the Data Explorers Securities Financing Forum that takes place in London on the 16th March. SLT is pleased to be Media Partner. There are still limited places available and you can sign up at www.dataexplorers.com/london
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