TNBiz (TNBiz)
World markets  |  September 15, 2010 12:56:07

The EC adopted a proposal to strengthen the regulation closing short positions


BRUSSELS (MEDIAFAX) - European Commission (EC) on Wednesday adopted a draft regulation which addresses the issue of closing short positions and credit default swaps. The aim of the proposal is to establish a framework for coordinated action within the EU, increase transparency and reduce risks, informed the Commission in its press release.

"Under normal circumstances, short selling helps the market liquidity and contributes to efficient pricing," said Commissioner for Internal Market and Services Commissioner Michel Barnier. "But in case of problems in the market, short selling may intensify the collapse in prices, which can lead to chaotic markets and systemic risks," he said.

According to Barnier's proposal will contribute to the deepening of financial stability at the European level. "Today's proposal will increase transparency for regulators and markets and regulators will also be able to easily detect the risk of government bond markets," said Barnier. "Regulatory authorities have clear powers in exceptional circumstances to restrict or ban short selling in conjunction with the new European Securities Authority and Markets (ESMA)," he added.

"This new framework means that national and European regulatory authorities have clear authority to act in case of necessity, and to avoid market fragmentation and to ensure the smooth functioning of the internal market," European Commission wrote in a statement.

The EC further says that a large part of the EU Member States recently adopted measures in some way suspended or prohibit closing short positions. According to the EC but actions that are coordinated outside the EU are "less effective can lead to difficulties in the market and also have an impact on investor confidence."

Under the proposal, regulators would be given clear powers in certain situations to temporarily restrict or prohibit the closing of short positions of any financial instrument, provided it is done in cooperation with the Authority. This institution, however, should run from January next year, currently still waiting for approval from the European Parliament (EP). Authority under certain conditions, be able to take provisional measures with a direct effect, which prohibits or restricts short-selling.

Furthermore, the price will drop significantly if certain financial instruments in one day, national regulatory authorities may limit the closing of short positions of the instrument until the end of the next trading day. The EC believes that through these measures will be capable of acting regulatory authorities coordinated.

The proposal now has to assess the European Parliament (EP) and Council of the EU. After discussion and approval in these institutions, the Regulation should enter into force on 1 July 2012.

Simone Radacicova,

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