UK win over EU short-selling ban could open door to tackle swathes of legislation

UK opposition to the European Union's "wide" powers to ban short-selling may be successful, as the rules could be unlawful, according to an EU court aide.

Advocate general Niilo Jaaskinen:

The emergency powers granted by that article to the European Securities and Markets Authority to intervene in the financial markets of member states so as to regulate or prohibit short selling go beyond what could be legitimately adopted as a harmonising measure necessary for the establishment or functioning of the internal market.

Under the rules, short positions over a certain threshold in bank shares and specific sovereign bonds must be reported to supervisors and markets.

Now those rules, first introduced in November 2012, could prove to be unlawful.

Alexandria Carr, regulatory lawyer at international law firm Mayer Brown:

The Advocate General has upheld the UK's challenge on one ground only: he has held that an improper legal base was used for the provision in the short selling regulation that permits ESMA to ban short selling and so that provision ought to be annulled. He has said that legislation that permits the replacement of national decision-making with EU level decision-making should be adopted under Article 352 of the EU Treaties not Article 114. Significantly, however, Article 352 requires a very different legislative process to be followed: it requires a unanimous decision of all Member States and in some Member States, including the UK, it may also require compliance with national constitutional procedures, such as a referendum.

In these circumstances, the Court's adoption of the Advocate General's opinion would be a very significant development in the field of EU law and would have immediate read-across to a number of dossiers currently being negotiated, for example the Single Resolution Mechanism and MiFID II both of which are proposed under Article 114 and which contain provisions that allow the substitution of EU decisions for national decisions.

Although the Advocate General's opinion is not binding, it is intended to suggest to the Court what its decision should be, so it is highly persuasive and, in practice, is followed by the Court in most cases.