Le Financial Times: Curbs on ‘naked’ short selling closer after EU vote

8 mars 2011
A ban on uncovered credit default swaps on sovereign debt and an effective prohibition of “naked” short selling of securities in Europe moved closer on Monday night after winning the backing of European Union lawmakers.

The MEPs’ stance will form the basis for the parliament’s negotiations with member states over the legislation in coming weeks.

Both must agree to the rules before they can come into effect. Member states have yet to finally declare their position, but diplomats will discuss this on Wednesday and EU finance ministers may try to reach broad agreement next week.

The parliamentary position, however, proposes to clamp down on trading in credit default swaps related to sovereign debt unless the investor has a long position in the underlying debt or an equivalent pool of assets.

It would severely restrict the ability of traders to engage in “naked” short selling of shares and other securities – that is, the sales of such instruments when they are not owned and there are no arrangements to borrow them.

Pascal Canfin, the Green MEP who is steering the legislation through the parliament, said, ahead of the vote, that the proposals would make naked short selling “far more complicated” and amount to “effectively banning” the practice.

Financial Times

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