Capital Markets

Mnuchin expected to be Trump’s Treasury secretary

Donald Trump has chosen Steven Mnuchin as his Treasury secretary, US media outlets reported on Tuesday, positioning the former Goldman Sachs banker to be the latest Wall Street veteran to receive a top administration post. Mr Mnuchin chairs both Dune Capital Management and Dune Entertainment Partners and has been a longtime business associate of Mr […]

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Financial system more vulnerable after Trump victory, says BoE

The US election outcome has “reinforced existing vulnerabilities” in the financial system, the Bank of England has warned, adding that the outlook for financial stability in the UK remains challenging. The BoE said on Wednesday that vulnerabilities that were already considered “elevated” have worsened since its last report on financial stability in July, in the […]

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Zoopla wins back customers from online property rival

Zoopla chief executive Alex Chesterman has branded rival OnTheMarket “a failed experiment”, and said that his property site was winning back customers at a record rate. OnTheMarket was set up last year, aiming to compete with Zoopla and Rightmove, the UK’s two biggest property portals. It allowed estate agents to list their properties more cheaply […]

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Hard-hit online lender CAN Capital makes executive changes

The biggest online lender to small businesses in the US has pulled down the shutters and put its top managers on a leave of absence, in the latest blow to an industry grappling with mounting fears over credit quality. Atlanta-based CAN Capital said on Tuesday that it had replaced a trio of senior executives, after […]

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BoE stress tests: all you need to know

The Bank of England has released the results of its latest round of its annual banking stress tests and its semi-annual financial stability report this morning. Used to measure the resilience of a bank’s balance sheet in adverse scenarios, the stress tests measured the impact of a severe slowdown in Chinese growth, a global recession […]

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Categorized | Equities

EU short selling rules spark confusion

Posted on October 31, 2012

Late and complex guidance from regulators has left the markets unprepared and confused ahead of today’s imposition of the first pan-EU rules on short-
selling, according to brokers, traders and investors.

The far-reaching regulation, which was finalised in March, imposes tough disclosure requirements for investors who place large bets that the prices of EU-listed shares or bonds will fall.

    The legislation also tightens rules against “naked” shorting – selling shares without arranging to borrow them first – and bans investors from buying credit default swaps on debt issued by sovereigns in the 27-nation bloc unless they can show they are hedging a long position.

    But investors and their lawyers have complained that the European Securities and Markets Authority, the pan-EU regulator, has failed to give them enough guidance on how to calculate the size of their short positions.

    “It’s a shambles,” said Darren Fox, a partner at Simmons & Simmons who advises hedge funds. “People are crying out for clarity. I can’t remember another piece of European legislation being implemented this badly.”

    Dealers are even angrier. The regulation contains important exemptions to the rules for market makers but Esma is not expected to issue final guidance on what counts as market making until later in November.

    “The regulators aren’t ready for this,” said Paul Cluley, a partner at Allen & Overy who has been advising market participants. “Esma isn’t ready. It is coming into force because there is a political will to be seen to be doing something, even if no one knows quite how, or indeed if, it will work.”

    The regulation also marks one of the first times that the EU has sought to regulate transactions outside its borders – any shorting of a security with a primary listing in the EU is covered.

    “This is really the first time that non-US regulation has impacted directly [on] US market traders,” said Stephen Wink, partner at Latham & Watkins, the law firm. “I think this was a real surprise for many folks in the US market.”

    The UK’s Financial Services Authority recently set up an application procedure for institutions that think they fit under the market-making exemption but the City watchdog has told banks and brokers to look to Esma to define what is covered.

    Esma officials acknowledged that the guidance on market makers would not be ready in time. But they noted that the EU regulator has already published two sets of frequently asked questions and downplayed the importance of the market-maker guidelines.

    “The requirement regarding the market-maker and primary-dealer exemption is already set out in the regulation,” Esma said in a statement. “The proposed guidelines, which are currently under discussion, are aimed at clarifying and explaining the application of the regulation, but do not change its scope.”

    But dealers said they needed the final guidelines to see whether Esma had responded to complaints that the draft version was significantly more restrictive than the regulation itself.

    “There isn’t total clarity on how that market-making exemption will work,” said Richard Metcalfe of the International Swaps and Derivatives Association. “There is still debate about what actually constitutes market making and whether that has to be a frequent activity. That shouldn’t be the case.”

    The new law also calls for the EU watchdog to opine whether national regulators are being reasonable when they impose emergency bans on selling equities and bonds short. Esma is expected to issue its view of the current Greek and Spanish bans this week.