Thursday, June 6, 2013

EU Court to Hear Britain's Challenge to ESMA Powers Over Short Selling

Author: David Schwartz J.D. CPA David Schwartz J.D. CPA

The Court of Justice of the EU (CJEU) has announced that it will hear a challenge to EU short selling regulations on June 11, 2013. Britain's finance ministry filed the legal challenge in June of 2012 against the European Union in an effort to limit the European financial regulators' power to ban short-selling. Britain's lawsuit seeks to clarify the powers granted to the European Securities and Markets Authority to halt or limit short selling across the 27-member EU nations in the event of a crisis.

The UK objects specifically to Article 28, “ESMA intervention powers in exceptional circumstances," which allows the agency in an emergency situation to decide to intervene directly and prohibit or place conditions on:

  • entering into a short sale
  • entering into other transaction in a financial instrument that confers a financial advantage in case of decrease in value of another financial instrument (does not apply to sovereign debt and sovereign CDS)

Though supporting ESMA's role in policing markets, Britain questions whether ESMA has the legal power to impose short selling bans over the objections of member states' regulators. These kinds of British challenges to EU authority are more common under conservative led governments, who are often less supportive of EU federalism, and greater advocates of the UK's own individual interests as a global financial hub. This lawsuit is just the latest test of the bounds of the EU's "Meroni Doctrine," which governs EU powers with respect to member states in the absence of a specific treaty provisions.