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Financial market regulation

Published on October 21, 2011
Communiqué issued by the Ministry for the Economy, Finance and Industry

Paris, October 19, 2011

François Baroin, Minister for the Economy, Finance and Industry, welcomes last night’s agreement on the draft European regulation setting strict rules on short selling and naked sovereign CDS. He now calls for a very swift, formal adoption of this text.

This draft regulation is the direct result of the letter President Sarkozy and German Chancellor Angela Merkel sent to President Barroso in May 2010, which called for better regulation of the most speculative activities, particularly at a time of market turbulence. What happened on the financial markets in the summer once again demonstrated the urgent need to adopt such a text.

At the practical level, this regulation will allow us to introduce total transparency on all short selling and avoid short selling of financial products when the seller is unable to trace the securities prior to the sale order. The European Financial Market Authority will be given increased emergency powers and will be able, among other things, to ban short selling on shares whenever national authorities fail to act.

Furthermore, it will ban sovereign CDS (credit derivative acting as insurance against non-payment of a sovereign debt) when the buyer is not really exposed to the sovereign debt concerned (so-called “naked sovereign CDS”).

Obviously exceptions will be made which will guarantee the smooth running of the sovereign debt market, inter alia for market makers and in cases where these derivatives reflect genuine risk hedging.

While congratulating the Polish European Union presidency, the European Commission and the European Parliament on reaching this stage – which must now swiftly lead to a formal adoption [of the regulation] – François Baroin calls for this to be built upon through a swift adoption of the draft regulation on the transparency and clearing of over-the-counter derivatives (EMIR project). With these two texts, all derivatives transactions, at the heart of the crisis, will be properly regulated./.

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