Europe plans short-selling restrictions

The European Commission (EC) proposed the creation of a powerful new agency that would be able to impose three-month bans on short-selling in the EU's 27 member countries as well as introducing strict curbs on the even more contentious practice of "naked" short-selling.

Two laws will be put to the vote at the European Parliament as EC president Jose Manuel Barroso comes under increasing pressure to clamp down on the 380 trillion-plus derivatives market. The laws propose that all short trades be flagged up to domestic regulators such as the Financial Services Authority.

Short-selling, where brokers trade securities they have borrowed, gambling that the stock will fall, was blamed for fanning the flames of the banking crisis. First Minister Alex Salmond accused so-called "spivs and speculators" who short-sold HBOS stock prior to its takeover by Lloyds for accelerating the bank's plight.

EU financial services commissioner Michel Barnier yesterday said: "No financial market can afford to remain a Wild West territory."

The Association for Financial Markets in Europe said the proposals risk introducing "disproportionate costs", but the Investment Management Association said it welcomed the harmonisation of standards across Europe.