Strasbourg: The European Union pushed ahead with its regulatory crackdown on Tuesday by giving the green light to curbs on trading sovereign-debt related derivatives at the heart of the euro zone crisis.
The bloc’s financial services chief Michel Barnier will also unveil a measure at 1400 GMT to inject competition into the credit ratings sector dominated by the Big Three: Standard & Poor’s, Moody’s and Fitch Ratings.
Many EU policymakers are keen to push ahead with the new rules, saying a ratings downgrade of Greek sovereign debt in 2010 made it more expensive and harder to mount the country’s first bailout package.
(From L-R) Spain’s Economy Minister Elena Salgado talks to European Commissioner for internal market and services Michel Barnier and EU Economic and Monetary Affairs Commissioner Olli Rehn during an EU finance ministers meeting in Brussels 8 November 2011. Reuters
The mistaken downgrade by S&P of France’s banking industry system will reinforce the EU’s determination to regulate agencies more closely, Barnier said last week.
The draft law, part of a broad regulatory push prompted by the financial crisis, will propose a temporary “blackout” on sovereign debt ratings in exceptional circumstances.
The “blackouts” element has proved divisive, and Barnier was due to meet with fellow European commissioners at 1200 GMT to thrash out its scope in the draft law as member states like Britain mount a last - minute effort to scrap the provision.
EU states and the European Parliament, which is meeting in Strasbourg this week, will have the final say on the measure, with some changes likely.
Parliament on Tuesday voted by 507 to 25 in favour of an EU law that restrict “naked” or uncovered selling of shares and sovereign debt. This refers to when a seller has made no prior arrangements to borrow the security.
EU states have already given the nod to the law, which was jointly agreed with parliament and is due to take effect within a year.
It also bans naked sovereign credit default swaps (CDS), where there is no ownership of the underlying government debt the CDS contract “insures” against default.
Policymakers want to crack down on what they see as speculation by hedge funds and others betting on falls in euro zone bond prices.
“The parliament has successfully fought for very strict conditions for short-selling to contain destructive speculation. The new transparency rules will help stabilise financial markets,” Markus Ferber, a German member of parliament’s centre-right party, said.
The draft law on ratings agencies, the EU’s third measure to regulate the industry since the financial crisis began in 2007, will avoid trying to create an EU answer to the US dominance of the sector.
Instead, it will seek to inject more competition by requiring users of ratings, such as companies and banks, to “rotate” or switch agencies on a regular basis so that some of the 10 or so smaller agencies registered in Europe, such as Euler Hermes, can pick up more business.