Short Selling Regulation
Markets may expect solid performance over the short term, but they also value sustained performance over the long term. How can companies manage both time frames?
March 2013 | by John Olivier, Chief Investment Officer
Nearly four years after European regulators began imposing short selling restrictions in the wake of the severe market disruptions following the bankruptcy of Lehman Brothers, and nearly two years after the Commission first proposed the Regulation to deal with the issue on an EEA-wide basis in the place of separate measures taken by national regulators, the legislative framework for comprehensive European regulation of short selling and sovereign CDS is now in place. The Regulation and its implementing regulations are exceedingly technical, dense and ambiguous in critical areas. Nevertheless, the time has now come for market participants to put into place the necessary compliance policies so that they are fully prepared when the Regulation and its implementing regulations go into effect on November 1, 2012.
EU Market Authority
Rejecting a spirited challenge by the United Kingdom, the European Court of Justice (“ECJ”) recently upheld the power of the European Securities and Markets Authority (“ESMA”) to regulate short-selling across the European Union under the EU's Short-Selling Regulation (“Regulation”). The ECJ's decision provides a strong legal foundation for additional EU-wide rules in the financial services sector. After methodically analyzing and rejecting all claims, the ECJ readily dismissed the United Kingdom’s action in its entirety. The lessons of the financial crisis proved too strong for the U.K., as it failed in its quest to annul Article 28 of the Regulation in the name of separation of powers and subsidiary.
With the ECJ's support, ESMA and the European Banking Authority (“EBA”) are now able to impose additional EU-wide regulatory measures in the financial services sector. Combined with the new powers granted to the EBA under the Banking Union, the ECJ's decision solidifies the jurisdiction of ESMA and the EBA and grants them a status akin to the regulators in the United States. Although the United Kingdom may bring further challenges if it thinks ESMA and the EBA have gone too far, the ECJ's recent decision points the way to a regulatory landscape where EU Member States have much less to say.
Selected Tools and Resources
Our Regulatory and External Affairs Capabilities (REAC) diagnostic is a proprietary, Web-based benchmarking tool that assesses and monitors a company’s capabilities for managing external affairs and engaging with stakeholders on regulatory issues. The survey takes only fifteen to twenty minutes to complete. Responses are compared against a sample of roughly 1,400 global companies to identify gaps, prioritize improvement opportunities, and test organizational alignment on key regulatory and reputational issues.