19 October 2011

Barnier welcomed trilogue agreement by Council and Parliament on new rules for short selling and CDS

"Last night's agreement by the European Parliament and the Council represents a significant step towards greater transparency, stability and responsibility in short selling transactions and sovereign credit default swap (CDS) markets. It will now need to be formally endorsed by the European Parliament, Council and Commission. When this regulation enters into force, regulators will be able to respond in a more coordinated and effective way when short selling poses a risk to the stability of markets.

For shares, the new requirements to disclose significant short positions to regulators and the market will provide transparency on transactions which are currently opaque. Clear powers for regulators, and under certain conditions the European Securities and Markets Authority (ESMA), to restrict short selling temporarily in exceptional situations will promote stability through coordinated action where necessary. And restrictions on naked short selling will limit the scope for transactions not being completed (settlement failures) and will provide for buy-in procedures when necessary.

In the current difficult economic circumstances, I particularly welcome Parliament and Council's endorsement of proportionate measures concerning sovereign debt and sovereign CDS, to ensure that regulators have access to the data they need and can act to restrict short selling of sovereign debt and limit sovereign CDS transactions when stability is at risk.

In a welcome improvement to our original proposal, so-called "naked" sovereign CDS positions will be prohibited where sovereign CDS are not acquired to hedge an exposure which is correlated to the value of the sovereign debt. The restriction will not apply to primary dealers and market makers. A competent authority will be able to suspend these restrictions temporarily where it believes, based on objective elements, that its sovereign debt market is not functioning properly and that such restrictions might have a negative impact on the sovereign credit default swap market. These balanced measures will ensure that sovereign CDS are used for the purpose for which they were designed, hedging against the risk of sovereign default, without putting at risk the proper functioning of sovereign debt markets.”

Full statement

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