Short selling ban gets closer

FRANCE and Germany have united in their call for a possible ban across the EU on naked short selling and told the European Commission they want proposals next month.

This marks a change for France which last month responded negatively when German Chancellor Angela Merkel surprised everybody by unilaterally banning naked short selling of shares in German banks and eurozone government debt.

Internal Market Commissioner Michel Barnier was planning to have legislation ready by October but his spokesperson said this will now be ready by early September.

She added that they will have a range of options ready as requested by President Nicolas Sarkozy and Chancellor Merkel for the next finance ministers’ meeting in July after very detailed consultations on short selling and derivatives.

“We welcome this letter because it strengthens us to have both these countries on board, and marks movement from the differences the two countries were having just weeks ago,” said the spokesperson, Chantal Hughes.

But just how united the two leaders are in the details of how all aspects of the financial markets should be regulated is unclear. The joint letter released from Berlin and Paris yesterday morning does not call for a ban on short selling or credit default swaps (CDS), but says it could be one of the options the European Commission should present.

Their letter says renewed high market volatility raises further questions on the use of certain derivatives, such as short selling and credit default swaps and calls on the Commission to “further speed up and intensify this work”.

“The Commission’s work should encompass the possibility of an EU-wide prohibition of naked short selling of all or certain shares and sovereign bonds as well as of all, or certain naked sovereign, CDS and its conditions, notably taking into account the special role of market-makers,” the letter says.

They also want to consider the possibility of European harmonisation of the time allowed for securities settlement and delivery relating to trading on European markets.

The norm in Europe is to settle on the third day after the trade but in Germany this is a day sooner.