January 22, 2014 / 9:52 AM / 6 years ago

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

BRUSSELS (Reuters) - The European Union’s top court has dismissed Britain’s challenge to the bloc’s law on banning the short-selling of shares in market emergencies.

The ruling is a blow to Britain’s attempts to limit the scope of financial rules from Brussels as Prime Minister David Cameron seeks to renegotiate the country’s membership of the EU.

Britain was challenging part of the short-selling law which gives the European Securities and Markets Authority (ESMA) the 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.

“The power of the European Securities and Markets Authority to adopt emergency measures on the financial markets of the member states in order to regulate or prohibit short-selling is compatible with EU law,” the Luxembourg-based court said in a statement on Wednesday.

“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.

Britain’s finance ministry, which mounted the challenge, said it was “disappointed” by the ruling.

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.

London is home to the EU’s biggest share trading center.

An advisor to the court had sided with the UK in an opinion last September, saying the emergency power went beyond what the watchdog could do under the EU treaty provision used to approve the law.

The court ruled that under the short-selling law, ESMA’s power was “precisely delineated” so that it could only go above the heads of national supervisors if they had taken no action to deal with disorderly markets.

ESMA said the ruling reinforces the short-selling regulation, the role of national authorities and that of ESMA.

The European Commission, which drafted the short-selling law and is responsible for enforcing the bloc’s rules, welcomed the ruling. “It removes any lingering uncertainty and is thus good news for market operators and ESMA,” said a spokeswoman for the EU’s executive body.

Lawyers have said that if Britain had won the challenge, it could have forced the EU to row back on various financial rules in the pipeline.

Britain is also challenging three other EU rules: A cap on bankers’ bonuses; plans for a financial transaction tax; and the European Central Bank’s attempt to force some clearing houses to relocate to the euro zone.

Reporting By Jan Strupczewski and John O'Donnell; writing by Huw Jones, editing by Louise Heavens

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