The European executive threw its weight behind empowering new watchdogs to rein in financial speculators on Monday, and dealt a blow to French and German hopes of a permanent EU-wide ban on some forms of trading.
Last week, German Chancellor Angela Merkel and French President Nicolas Sarkozy wrote to the European Commission demanding it look at outlawing some short selling of shares and government bonds.
On Monday the Commission, which writes the first draft of Europe's laws, issued a rough outline of new rules that recommended emergency restrictions but stopped short of blanket bans on the speculative bets many believe exacerbated the euro zone crisis.
Instead, officials emphasised the role of a pan-national supervisor, whose powers are soon to be decided by EU lawmakers, in controlling those who bet on securities or a potential sovereign default. Privately, they conceded that outright bans in the EU had little chance of winning backing from Britain and some other states.
In a document that signals the shape of new laws to overhaul the $600 trillion global derivatives industry, the Commission put forward emergency powers for a soon-to-be-created European watchdog.
The blueprint foresees that a European regulator officials hope will be similar to Washington's powerful U.S. Securities and Exchanges Commission would be able to intervene in the event of dangerously large trades. It would also be allowed to cool down overheated markets with three-month bans on short selling of bonds and shares, or curb dealing in tradable insurance such as Credit Default Swaps (CDS) if there was "a serious threat to financial stability or market confidence".
The EU's financial services chief, Michel Barnier, pledged to deliver a new regime for short selling, which involves a bet that the price of a share or bond will fall.
"For short selling ... I am ready to put forward proposals which will make markets more secure," said the former French foreign minister.
Politicians have been demanding a crackdown on speculators ever since Greece ran into difficulties borrowing. Many believe investors who bet on insurance to cover that country's potential non-payment of loans exacerbated its problems.
CDS is part of the largely unchartered derivatives market that ballooned ahead of the global financial crisis and one that Barnier, has promised to deal with "severely".
This opaque market, where the only record of many multi-million euro deals is a fax, has frustrated politicians who have attempted to control it because there are no central records of trading.
Last Friday, France's parliament approved a law to give the country's regulator more power to clamp down on short selling.
Germany recently introduced a unilateral ban on naked short selling -- where the seller has not borrowed the shares they have promised to sell -- sparking upheaval in global markets and anger among EU neighbours for failing to consult them.
Britain is anxious for a more moderate approach from Brussels, and London, which would stand to lose most as Europe's financial and trading capital, has long argued against outright bans.
Barnier will announce rules in September for trading in derivatives, which give investors the option to buy anything from currency to gas at a fixed price in the future. This week, he starts to gather feedback from industry.
The Commissioner is influential because his staff propose all laws to control financial services and then broker a compromise between the European Union's 27 countries and the bloc's parliament.
ReutersLast Mod: 14 Haziran 2010, 19:19