EU seeks more power over securities regulation

2 mins read

By Andrei Khalip and Sergio Goncalves

European Union countries should give more powers to its securities regulation committee and adopt a common approach to short-selling, a trading practice blamed for exacerbating the stock market slide, a senior EU regulator said.

"I defend that CESR should have binding regulatory powers and that the regulation be more centralized, leaving local supervision to individual countries," said Carlos Tavares, vice-chairman of the Committee of European Securities Regulators (CESR) and head of its review panel.

Tavares told Reuters in an interview on Friday he welcomed a report on reforming financial supervision by former IMF Managing Director Jacques de Larosiere, which "would turn the committees for securities, banking and insurance, into European regulatory authorities" from mere consultative bodies.

The report recommended setting up an umbrella group for European supervisory bodies, under which the three existing pan-European committees, including CESR, would get wider powers.

EU leaders will discuss the report next month with a view to giving political backing for reform of market supervision.

The European Union is discussing ways to eliminate flaws in the bloc's patchwork of national supervisory frameworks, which include varied approaches to short-selling, ranging from a total ban to compulsory reports on such deals.

Facing a plunge in stock markets, especially banking shares, as a result of the global financial crisis, European countries adopted measures against short-selling last September . Some bans have since been lifted.

"Institutions working in various markets are facing different rules … There can be regulatory arbitrage, and there is certainly a higher cost for financial mediators that have to follow different rules in different markets," he said.

Tavares, who is also chief of Portugal's CMVM securities market regulator, said Portugal's own experience was positive and could be used by other countries.

Portugal last September banned "naked" short-selling of financial stocks, where an investor has no securities to cover a transaction, but allows such transactions for other stocks if they are covered at the end of the session. Covered short-selling is also allowed.

All short sales of stocks in general also have to be reported to CMVM daily.

"I think the Portuguese case is one of equilibrium in this matter. We did not ban covered short-selling because we understand that it is a market instrument that contributes to liquidity," he said.

"The Portuguese set of rules is what I'd advocate … CESR has a task force working on short-selling and the impact of the measures, looking at what has been achieved and what is desired, and it is studying ways to harmonize the rules between various countries."

CMVM data shows short-selling accounted for only around 5 percent of daily trading volumes in Portugal since it started daily monitoring in September.

Tavares said CMVM in Portugal was investigating several cases of suspected market abuse involving short-selling, but would not elaborate.

He said the regulator was also seeking to introduce clearer rules for over-the-counter trading and was increasingly watchful of potential market abuse in analysts' research about listed companies and the way such research is published.

"I think that's an area where the European legislation can be improved. I expect that during the revision of the (European Commission's) market abuse directive the issue of research production and publishing will get the attention it deserves, and that more demanding rules will be adopted."