The European Commission (EC) has closed its public consultation on short selling and has received over 100 responses, which it is preparing to publish.
The consultation ran from 14 June to 10 July, less than the customary eight weeks, as it was considered a matter of urgency by the EC due to the recent volatility in euro-denominated bonds and a previous consultation on market abuse.
The results will influence the proposal for a directive that will made by the EC, with the aim of reducing “systemic risks and risks to financial stability and market integrity arising from short selling.”
The consultation covered the types of security that can be short sold, transparency, naked shorting, exemptions and the powers of authorities appropriate in normal and exceptional circumstances.
Short selling has been criticised by European politicians and some industry figures for driving down the value of assets. It has also been robustly defended within the sector as a source of liquidity, particularly from the alternative asset management business which is very active in the use of shorting. On 19 May 2010 the German regulator BaFIn banned short selling in Germany of certain financial stocks and of debt securities of Euro zone countries, until 31 March 2011.
In a response published on 12 July, the Association for Financial Markets in Europe (AFME), which represents investment banks, broadly supported the consultation but warned against a ban on naked short selling as it “will not succeed in its aim of reducing volatility and could have the opposite effect”.
AFME also observed that proposals that equity investors disclose their short positions “may expose them to unfair risks”, arguing instead that regulators “publish the aggregated reported short position of the market”.
Full responses are expected to be published today or in the week beginning 19 July 2010.