EU Commission urges joint action on short-selling

[May 19, 2010]  BRUSSELS (AP) -- EU countries should act jointly to regulate so-called naked short-selling of shares and investments to reduce volatilty in financial markets, the European Commission said Wednesday.

A day after Germany unilaterally imposed such a ban, EU Internal Market Commissioner Michel Barnier said eurozone finance ministers should coordinate their efforts at a special meeting on Friday in Brussels.

They need to lay the groundwork for a "European regime to avoid regulatory arbitrage and fragmentation both within the EU and globally," he said

"Financial markets are currently uncertain and volatile," he said in a statement. "These measures will be even more efficient if they are coordinated at a European level."

Late Tuesday, Germany suspended naked short-selling of eurozone government debt and shares of major financial companies.

Since taking charge as the EU's single market policeman in January, Barnier has focused on the issue of naked short selling, including trading of credit default swaps, and their link to the debt crisis.

Short-selling occurs when traders sell shares or investments they do not own themselves. Credit default swaps are a type of insurance against a borrower going bankrupt. Both have become a large and lucrative market.

European leaders complain speculators have used credit default swaps on Greek government debt to bet the country would default on its borrowings -- raising pressure to the point where it was forced to ask for a bailout.

The EU will publish in coming weeks draft rules on short-selling that will cover disclosure rules and emergency regulatory powers, officials said. Barnier is to put forward EU legislation on the issue in October.

[Associated Press; By ROBERT WIELAARD]

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