May 20, 2010 / 4:46 PM / 9 years ago

Germany seen risking WTO challenge over shortselling

* WTO rules allow limits to financial services access

* But only for prudential or financial stability reasons

GENEVA, May 20 (Reuters) - Germany’s ban on speculative short-selling of securities could be challenged at the World Trade Organization if it is viewed as excessive, a European think-tank specialising in trade issues said on Thursday.

The European Centre for International Political Economy (ECIPE) said the move could mean that Germany was flouting its commitments in the WTO on market access in financial services.

WTO rules focus on liberalisation rather than regulation, but require that regulation treats all countries equally.

Despite that, there is a large waiver — known as the “prudential carve-out” — that allows members to take special measures to ensure the integrity and stability of their financial systems.

But Germany’s ban on naked short-selling of euro-denominated government bonds, sovereign CDs on those bonds and shares in Germany’s 10 leading financial institutions did not fall into this category, ECIPE said in a media brief.

“The German ban is not a prudential regulation, which typically aims at protecting depositors and protects financial systems from excessive risk-taking,” it said.

ECIPE cited doubts about the move’s scope for increasing stability on the German market.

It also said the ban had been imposed in the worst possible way from the point of view of WTO rules — a unilateral measure without any consultation with other countries.

“In short, the ban is against the founding principles of the WTO and the European Union — to stop disguised or poorly designed domestic regulations that restrict trade, worsen economic crisis and spread it to neighbours,” it said.

A challenge to Germany would involve a dispute against the European Union as a whole, since Brussels represents member states on trade.

Short selling is a trade that bets a price will fall. Naked short selling is when a trader sells a financial instrument without first borrowing the instrument or ensuring that it can be borrowed.

The Brussels-based think-tank has built a reputation for spotting the trade litigation implications of economic or commercial moves. In November last year it revealed that China’s censorship of the Internet was open to challenge at the WTO, although no formal challenge has yet surfaced. (Reporting by Jonathan Lynn; Editing by Stephanie Nebehay)

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