September 19, 2008 / 12:53 PM / in 11 years

Short selling measures highlight EU oversight flaw

BRUSSELS, Sept 19 (Reuters) - Separate moves by market watchdogs in Britain, France, Portugal and Ireland to crack down on short selling has shown how much market supervision needs to catch up with EU financial integration, analysts said on Friday.

Britain was first to announce a crackdown on the practice, blamed by critics for fuelling massive falls in banking stocks.

National market watchdogs in France, Portugal, and Ireland took similar steps but there was no coordinated announcement in spite of exchange mergers and new pan-European trading platforms making EU-wide share trading common.

The Committee of European Securities Regulators, made up of national watchdogs from all 27 EU states, may make a statement on short selling later on Friday, regulatory sources said.

CESR and the European Commission had no comment on this.

Critics said the drip feed nature of the announcements was a reminder of the need for more apparent coordination at a time of crisis.

“Certainly the evidence now before us is that European markets are moving as one so there has to be a greater degree of supervisory coordination,” said Graham Bishop, an EU financial services expert.

“That’s easily said but what’s to be done about it. It does force people to realise nasties happen and when they happen you need extreme clarity,” Bishop said.

The European Commission is the EU’s top market regulator with sole powers to propose changes to EU-wide financial services rules but in market turmoil it is largely a bystander though it has influence to nudge national regulators.

“The European Commission does not have direct supervisory powers as that is for the national supervisor,” EU Internal Market Commissioner Charlie McCreevy’s spokesman said.

“What we are looking at is improvements to the regulatory system as such by proposing or changing rules at the EU level,” he said.

It’s still up to national watchdogs like the Financial Services Authority in Britain to decide how they want to intervene within the framework of EU rules.

An EU market supervisor has been a long-held dream of some countries like France but anathema to Britain, the EU’s biggest financial centre and eye of the financial storm in the region.

The CESR is playing a growing role in ensuring better coordination and consistent application of EU financial rules and some hope it will one day become the EU equivalent to the U.S. Securities and Exchange Commission.

At the moment CESR has no legal powers to act as a single supervisor, hence the scattergun announcements of crackdowns on short selling on Friday.

The European Central Bank — the first central bank to pump liquidity into frozen money markets in August last year — would also need a key role in pan-EU banking supervision.

“If we were to want a more single structure of supervision, the operational preparations would take some time. We could think about a three-year period,” said Karel Lannoo, a financial services expert at the Centre for European Policy Studies.

The year-long credit crunch has fleshed out the role of the Fed and of the Bank of England in a market crises.

“We are now waiting for this clarification of the ECB’s role. Who pulls the trigger and says we have to intervene,” Lannoo said. (Reporting by Huw Jones, editing by Hans Peters)

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