EU’s top court rejects UK challenge to short-selling law

Ruling deals major blow to UK attempts to limit the influence of EU on City of London

British prime minister David Cameron (centre) leaves Downing street to attend prime ministers questions at the Houses of Parliament. Photograph: Facundo Arrizabalaga/EPA

British prime minister David Cameron (centre) leaves Downing street to attend prime ministers questions at the Houses of Parliament. Photograph: Facundo Arrizabalaga/EPA

 

The European Union’s top court has dismissed Britain’s challenge to a law on banning the short-selling of shares in market emergencies, dealing a blow to UK attempts to limit the influence of EU rules on the City of London.

British prime minister David Cameron had been seeking to limit EU controls on London, the bloc’s biggest financial centre, reflecting a broader attempt to renegotiate the country’s membership of the EU ahead of a promised referendum on staying in the bloc.

But the court’s ruling means British regulators would not be able to opt out of the short-selling law, which gives the European Securities and Markets Authority (ESMA) power to ban bets on falling share prices in instances which it sees as a threat to markets or the stability of the EU financial system.

London has traditionally been less keen on such a ban than other centres, seeing it as a short-term impediment to market liquidity which ultimately is the best determinant of a stock’s value.

“The power of the (ESMA) ... to adopt emergency measures ... in order to regulate or prohibit short-selling is compatible with EU law,” the Luxembourg-based court said in a statement today. “As all the pleas in law relied on by the United Kingdom have been rejected, the Court dismisses the action in its entirety,” it said.

Short-selling refers to the sale of borrowed shares in a bet the price will fall so they can be bought back more cheaply to turn a profit. It remains controversial because some regulators believe it can add to stock market weakness at times of crisis or great volatility.

Britain’s finance ministry, which mounted the challenge, said it was “disappointed” by the ruling and would respond in full at a later date. “We’ve consistently said we want tough financial regulation that works, but any powers conferred on EU agencies must be consistent with the EU Treaties and ensure legal certainty,” the UK Treasury said.

Polls suggest Mr Cameron’s government faces a drubbing in May’s European Parliament elections by the anti-EU UK Independence Party (UKIP), whose leader Nigel Farage said: “The institutions in Brussels despise the City of London and what they see as its Anglo-Saxon practices. “We demand that the British government has control over British industry. This ruling exposes their impotence. The City is totally at the mercy of the European Commission. ”

Reuters