Court slaps down UK challenge to EU short-selling ban
By Benjamin Fox
The European Court of Justice has in a surprise move thrown out a UK legal challenge to EU rules on short-selling.
The ruling refers to legislation adopted in 2012, which gives the Paris-based European Securities and Markets Authority (ESMA) the power to ban short-selling as an emergency measure if it deems that there is a threat to the bloc's financial markets.
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The UK argued that these powers to directly intervene in financial markets went beyond the terms of the single market and should only lie in the hands of national governments.
Short-selling involves traders borrowing shares and immediately selling them before buying them back at a lower price when their value falls.
Although advocates of the practice say that it leads to more accurate share pricing, it can also fuel speculation and undermine public confidence in markets.
In a ruling on Wednesday (22 January), the ECJ dismissed "in its entirety" four complaints by the UK government, finding that the regulation was "precisely delineated and amenable to judicial review" and conformed with the EU treaty.
It pointed out that the legislation requires ESMA to inform national regulators before it takes decisions and review them every three months.
But the ruling comes as a surprise. Less than four months ago, an opinion by the Court's advocate-general Niilo Jaeaeskinen suggested that ESMA's powers "go beyond what could be legitimately adopted as a harmonising measure necessary for the establishment or functioning of the internal market."
Although such opinions are not binding on the court, they are rarely contradicted by its team of judges.
The ruling also overturns a legal mechanism that UK officials have relied on to prevent 'mission-creep' since joining the European Community in 1971.
Under the so-called 'Meroni' ruling of 1958, which originally applied to the European Coal and Steel Community, delegated powers from EU institutions to agencies could not involve political judgements because this would undermine the balance of power between EU institutions.
Contacted by this website, a government spokesman said that the UK was "disappointed" with the ruling.
"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," he said.
"We will now consider the judgment in detail and respond, in full, at a later date."
The case is the first of a series of legal challenges that the UK, which has Europe's largest financial services sector, has launched against EU regulation.
In 2013, the UK joined with Luxembourg to oppose plans by eleven EU countries to set up a financial transactions tax. It is also challenging new rules to cap bank bonuses.