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Short Selling: tough EU standards on short selling. Markus Ferber MEP


19 Oct 2011


Euro & Finance

Highly speculative financial market transactions in government bonds and credit-default swaps (CDS) will soon be contained throughout the EU. Negotiators of the European Parliament and the Council agreed on a new EU Regulation on short selling last night. "We have successfully fought for very strict conditions for short selling. Such restrictions are badly needed to contain destructive speculation", said Markus Ferber MEP who is in charge of the Regulation on short selling for the EPP Group.

Short selling of uncovered credit-default swaps for government bonds will be subject to the strictest cirteria. Only if the liquidity in the market for government bonds comes to a standstill will exemptions be possible. Respective applications will have to be endorsed by the European supervisory authority ESMA. "This means a de-facto ban on the short selling of uncovered CDS on government bonds which is crucial as the speculative potential currently possible can lead, and has lead, to the artificial decrease of government bonds", said Markus Ferber.

CDS can be used as insurance against the default of government bonds. However, CDS can also be used to speculate against the value of government bonds. With uncovered CDS, market participants do not possess the financial instrument, they only borrow them. "It is only logical that CDS on government bonds are meant for investors who actually have the respective government bonds. All else is pure market speculation that can have incalculable effects and ought to therefore be contained", said the EPP Group MEP.

The new EU Regulation now requires the formal consent of the plenary of the European Parliament and of the Member States. It can enter into force by the end of the year. For the moment, there are different or no rules whatsover on short selling at national level.

For further information:

Markus FERBER MEP, Tel: +32-2-2847230

Thomas Bickl, EPP Group Press and Communications Service, Tel: +32-478-215372

Notes to Editors:
The EPP Group is by far the largest political group in the European Parliament with 264 Members.