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Short selling
The EU rules, which include coordinating temporary short-selling bans and requiring short-sellers to report positions above a certain threshold, came into force last November after politicians accused hedge funds of worsening the banking and eurozone debt crises by shorting bank shares and using credit default swaps (CDS) to short bonds of debt-laden governments. Critics argued that temporary bans on short-selling would hamper the ability of markets to come up with prices and would generate swings in prices.
"Temporary bans do not seem to have a significant impact on price formation", ESMA said in its study. "Temporary bans do not seem to have a significant impact on price volatility, and have a small positive impact on returns ... of the shares under short-selling restriction", it added.
ESMA said initial evidence did not back some of the concerns expressed by debt market participants about short-selling, but that CDS liquidity in a few specific countries and instruments did experience a significant deterioration. "Overall, liquidity in the EU sovereign CDS market did not decrease significantly after the regulation entered into force", ESMA said.
Benchmarks
ESMA said the incidence of "obviously erroneous submissions" seems to have declined as banks follow guidelines from ESMA and the European Banking Authority to make submitting quotes more rigorous.
"Patently erroneous submissions became rare in recent months", ESMA said in a study published on Friday. Abnormal deviations for Euribor did not occur at all between September 2012 and May 2013. The continuity of key benchmarks in the EU remains a major concern as banks pull out of panels. The number of banks on one Euribor panel has fallen from 42 to 32, ESMA said.