Esma struggles with short-selling rules

The European Securities and Markets Authority has admitted it is finding it difficult to implement European regulation on short-selling due to a lack of clarity over how the rules have been set out.

Esma, one of three regulators which aims to ensure consistent financial supervision across Europe, is overseeing the EU’s regulation on short-selling, which came into force last November. 

The rules require mandatory reporting of significant net short positions to the relevant regulators and to the public. 

Speaking at the Wealth Management Association’s annual conference in London last week, Esma executive director Verena Ross said: “The regulation’s aim is to create transparency in short positions to the regulator and the public at large, and [they] also include prohibitions around uncovered short sales.

“We have spent a lot of time trying to clarify how to implement this. There are a number of areas we have indicated that need further clarification.” 

Ross did not specify which aspects of the regulations were unclear, but Esma later said it was seeking to refine certain definitions within the rules.

Last month, the European Court of Justice advocate general indicated that Esma will be stripped of its power to ban short-selling in economic emergencies, saying the powers went too far in replacing national decision-making with EU-level decision-making. 

Plutus Wealth Management independent financial planner James Robson says: “The policy seems to be shutting the doors after the horses have bolted. I do not think you will ever achieve what the regulator wants unless there is a blanket ban on short-selling – and God knows what that would do to markets. 

“The regulation is simplistic and a bit late.”