EU law poised to ban abusive short selling

London: European Union regulators will be able to ban abusive short selling of shares and naked selling of credit default swaps and sovereign debt for three months or more, a draft EU law showed Wednesday.

The bloc's financial services chief, Michel Barnier, has already flagged the measure he is due to publish on September 15.

It follows calls from some member states to crack down on what they saw as speculators causing mayhem in Greek and other euro zone sovereign debt markets earlier this year.

Unilateral ban

After Germany introduced a unilateral ban that shook global markets and upset its European Union partners, Barnier wants a pan-European Union law on short-selling to ensure consistent, proportionate actions across the bloc in emergency situations.

"The regulation aims at addressing the identified risks without unduly detracting from the benefits that short selling provides to the quality and efficiency of markets," a copy of the draft law obtained by Reuters said.

Emergency measures

The new European Securities and Markets Authority (Esma), due to be in place from January, will be given powers to introduce emergency measures, such as bans for up to three months, renewable for a further three months at a time.

Esma would also be able to overrule unilateral actions by states, such as Germany's ban.

The law would ban all naked short selling — where sellers have not arranged to borrow the assets — of shares and sovereign debt.