The outcome of a UK lawsuit over short-selling rules could prove pivotal in determining the future power of European super-regulators created in the wake of the financial crisis, according to legal experts.
The case, which was brought against the European Parliament and Council of the European Union by the UK last September, relates to the discretionary authority the European Securities and Markets Authority has to ban firms from short-selling certain instruments in exceptional circumstances. The UK believes these powers go beyond ESMA’s remit. The case will be heard at the European Courts of Justice in Luxembourg this week.
Alexandria Carr, a barrister at Mayer Brown International, said: “The UK’s main complaint is that European agencies should not be given a wide discretionary power, especially where their decision could have significant economic policy ramifications. The outcome of this case could either clear the way for ESMA to have a wider remit in future legislation or impose strict parameters on the discretionary powers it may have going forward.”
MiFID, which is still being negotiated, will hand ESMA the power to restrict the sale of certain financial instruments or practices. ESMA also has oversight of new pieces of market infrastructure known as trade repositories, introduced under EMIR, and credit rating agencies.
The UK’s case relates to the European Short Selling Regulation that came into force last November. It gives ESMA the power to intervene at a national level by requiring trading firms to disclose publicly their short positions or by prohibiting firms from entering into short sales.
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