Global Financial Strategy - Insight: UK position on EU short selling and CDS curbs

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Insight: UK position on EU short selling and CDS curbs

Friday 1 April 2011 – by Will Henley

As tense negotiations in the European Council on curbs to short selling and credit default swaps remain on a knife-edge, senior policymakers in Britain gathered yesterday to dissect the controversial proposals.

Influential MEP Syed Kamall was joined by representatives of the UK Financial Services Authority and Alternative Investment Management Association at a special seminar in London.

Major differences remain in marrying proposals put forward by European MEPs – such as forcing traders to settle uncovered positions by the end of each trading day – and those currently being hammered out by member governments.

And on the main point of the day the panellists were unanimous: the proposed short selling and CDS regulation poses a major, if as yet hypothetical, risk to the investment industry of the continent – and London especially.

Michael Treip, a key insider at the Financial Services Authority, told those at the Open Europe think tank seminar that the UK remained an “active” player in ongoing talks, but added it is as yet impossible to predict the outcome.

“What is proposed [in Europe] is a far more stringent regime than what we see elsewhere in the world – whether talking about the US or Asia or Australia. That has obvious risks about the competitiveness of European markets.”

Related articles:

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MEPs agree short selling and CDS curbs

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France launches perm short-selling rule

Japan extends short selling ban

ASIC clears up short-selling reporting

UK a risk to worldwide financial stability

“It is a pretty difficult one to call,” Treip said. “There are some significant divergences between the two institutions and I am genuinely unable to call where some of those are going to come out.”

“We are somewhere between hopeful and confident that the overall outcome will be one that is good for the markets.”

As the policymaker alluded, the UK, home to some 80 per cent of European hedge funds, is at odds with many of its continental cousins over planned restrictions to constrain risky behaviour.

Evidently pleased that Brussels has given up on the idea of a permanent ban on short selling, Treip said however that he was “not convinced” that the remaining package is proportionate to the risks posed by the investment practice.

He explained that the FSA was also not persuaded of the need to curb covered short selling, and added that an idea to extend equity short selling restrictions to sovereign debt positions was unwelcome.

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