EU watchdogs plan short selling regulation

European Union regulators unveiled proposals on Wednesday to force short sellers of stocks to publicly disclose significant positions in a bid to crack down on those who abuse the market. Short selling is a practice often favoured by hedge funds and has been criticised by policymakers for amplifying bank share sell-offs.
Market watchdogs in several EU states began unilaterally introducing short selling curbs when shares in banks came under heavy pressure following the collapse of Lehman Brothers investment bank in September. The Committee of European Securities Regulators (CESR) said it was time to launch a policy review with the aim of devising pan-European standards for short selling.
"CESR is of the view that a pan-European regime for enhanced transparency of short selling should be implemented on a permanent and harmonised basis ... by introducing European legislation in this area," the regulatory body said in a statement. Regulators have been criticised by exchanges for their lack of co-ordination in what has become a single capital market in the EU where the same blue chips can be traded on several pan-EU trading platforms and exchanges.
Hedge funds are often cited as favouring short selling whereby unowned stock is sold in anticipation its price will fall, thereby generating a profit when it comes to buying the shares later on to settle the trade. IOSCO, a global regulatory body, has said the best way to tackle abusive short selling is through penalising failures to settle trades to encourage pre-borrowing of stock before selling it short.
In the United States an interim rule requires big investors and hedge funds to disclose their short position to the regulator only and the Securities and Exchange Commission is set to decide soon on whether any public disclosure should be made.
Exchanges say there is no concrete proof that the short selling curbs stopped the fall in bank shares. CESR said it was focusing on disclosure to discourage large scale short selling. In the absence of an EU law, CESR is proposing a short-selling regime based on disclosure for all shares, not just financial stocks typically covered by national initiatives.