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Wednesday, January 22, 2014

ECJ rules against the UK in landmark short-selling case

The ECJ this morning rejected all the UK’s claims against the EU's short selling regulation. The result was surprising given that the Court's Advocate General Niilo Jääskinen issued an opinion supporting the UK’s position last September – court rulings often, but not always, follow these opinions.

The nub of the UK's complaint was that the new regulation transferred too much discretionary power to ESMA (the European Securities and Markets Authority) to ban short-selling over the heads of national regulators. And that the legal base for doing so in the EU treaties was unsatisfactory. The case could therefore set an important precedent.

The UK’s complaint as described by the court:
The United Kingdom contends, inter alia, that ESMA has been given a very large measure of discretion of a political nature which is at odds with EU principles relating to the delegation of powers. The United Kingdom also submits that Article 114 TFEU is not the correct legal basis for the adoption of the rules laid down in Article 28 of the regulation.
The full regulation and article 28 can be found here.

Here is what Jääskinen had to say about the complaint in September:
"The outcome is not harmonisation but the replacement of national decision-making with EU level decision-making. This goes beyond the limits of Article 114."
While he didn’t side with the UK on all issues, he did recommend changing the legal base of the regulation to Article 352, which would have given the UK a veto.

However, the ECJ took a very different line arguing that the regulation is in line with the treaties since ESMA already has a role to play in this area and because the powers are limited to times when financial market stability is in question - of course when this is, remains to be defined by ESMA itself. The court also suggests that, contrary to the Advocate General's view, the new rules do provide for harmonisation.

As we noted before, this ruling has the potential to be very important for the UK and could set the tone/precedent for future rulings. The court’s decision to reject the UK’s claim could have some important implications:
  • Firstly, it potentially sets a precedent for the transfer of powers to an EU agency under the single market article (114). This is decided under qualified majority vote (QMV) meaning the UK does not have a veto. Not only that, but the scope of the powers remains vague and widespread, allowing ESMA quite a significant amount of leeway in deciding where to act in what the UK Government would argue are political decisions.
  • More generally, there will be a concern that it could allow the use of Article 114 to be stretched – a question which is raised in some of the UK’s other on-going court challenges against EU financial regulation.
  • This will raise concerns in the UK over two issues – financial services regulation and the split between euro and non-euro countries. The first is obvious given that the UK may feel its ability to legally protect itself against burdensome regulation is now diminished. The second stems from the potential abuse of the single market article to further the needs of the eurozone - the short-selling ban was largely conceived following the eurozone/financial crisis to combat 'speculators'.
  • One saving grace may be that the ruling is quite specific in terms of financial market oversight, a role which the agency in question (ESMA) already has a part in. However, only time and future legal challenges will tell far-reching the implications of this ruling will be.
What happens now?

Given that the ECJ rejected all aspects of the UK's claim, it is dismissed entirely. There is little more the UK can do from a legal aspect, unless it decides to challenge other parts of the regulation but that seems unlikely.

The UK can continue to work behind the scenes to limit the practical power of ESMA and define strict criteria for when it can act on this issue. Of course, if any decision to limit short-selling by ESMA does happen, it could always challenge that specific move.

Nevertheless, this is clearly a political blow to the UK.  


Anonymous said...

"There is little more the UK can do from a legal aspect"

This decision is a disgrace and a sham. It is, oddly enough, very similar to the UK v Iceland decision last year.

The EU will change the rules or interpret them differently and/or change market convention to suit the social agenda and cover up of the Euro debacle.

As you are aware, the EU criticised London's financial services industry (and especially hedge funds) in 2008-2010 for their short-selling of EU sovereign debt. The report was buried as no evidence of short-selling could be found.

The EU, ECJ and ECHR are out of control.



Jesper said...

Actually the judgment is a good thing as it illustrates the dangers of having articles that are very very open to interpretation in combination with interpreters (the ECJ) with a bias. Their bias comes from the 'ever closer union' part of the treaties.

Article 114 can be used for almost all legislation coming from the EU and since the precedent has been set (it has been set, no doubt about that), it will be used more often.

See the similarities with the US (different legal basis, same procedure):

Rik said...

This is one of those things that could be used to explain to the financial sector that reform is necessary. The EU/EZ is moving rapidly into an overregulated market.
Imho there is need for some new regulation, the problem however is the issues that should be adressed are hardly adressed. The things that are adressed are often political pets or simply like often show that the EU simply hasnot got a clue about the sector.

This has simply overregulation; kangaroocourt written all over it. 2 of the probably 5 main agenda points (next to democracy/lack of platform/centralisation gone mad; immigration; waisting money).
And some of the points business will have on top of their list. Hard to see eg they have the EU budget there.

Average Englishman said...

It's more likely that Turkeys would vote for Christmas than the ECJ would go against the 'ever closer union' principle.

At least the verdict will help to oil the wheels of the UK's overdue exit from the EUSSR, as it will win more support in The City of London for the UK to leave. The longer the UK stays in, the higher the cost and the lower the benefits.

Anonymous said...

Hi Jesper,

I don't think that it is a good thing, either for the UK or for the EU/ManaZone.

Breaking market convention and/or issuing bizarre judgments just enforces the case against investors putting their money into the EU.

BTW, I understand that most Euro-sovereign bonds are now issued based on London Law and Jurisdiction for that very reason. The law of unintended consequences - again.

Investors do not trust the EU to do the right thing.

Breaking Cypriot bank deposit holders before equity and bond holders underlines this.

My money will NOT EVER be invested in any MananaZone country even if the returns look amazing.


christina speight said...

It is clear that keeping the UK in the EU is not anyone's priority - except for the UK's home-grown europhiles.

This is irrefutable evidence that the EU Commission is not to be trusted and that the only legal remedy open to us is the invocation of Article 50. [The ECJ can be relied upon resolutely to misinterpret any bit of the treaties which stand in the way of a United States of Europe)

It is frustrating that we are caught in an endless process of procrastination before the British people are allowed to decide their future.

The Tory MPs now pressurising Cameron will surely revolt when the euro-election results come in.

How can Open Europe not see that that a deliberate p;rocess of 'stitching-up' the City and the UK generally is the Commission's chief aim at present?

Van_Leeuwen said...

@Anonymous: Indeed, the Titanic was a British passenger liner. I wish ex-EU Britain a better fate

Anonymous said...


A corrupt decision from a kangaroo court!

This kind of politicizing of "justice" exemplifies the fascist nature of the EUSSR.

UKIP, I hope you're ready for a stampede!!

Excellent news!

Anonymous said...


We learnt from our experience and do not wish to get on it again! You will need your life jacket and a spare lifeboat.

We also do not want to surrender our precious sovereignty and freedom at the drop of a hat to such poor politicians with a diabolical record.

Perhaps you could get them to audit their own accounts? After all, it has only been 22 years.

OE - are you not publishing comments you don't like today?


johnlandseer said...

So Raoul Ruperal seems almost surprised about this judgement eh?

There is a time for children and a time for adults....well, its adult time now.

In this judgement we have a perfect example on non-alignment between the Eurozone and what, we n the UK want to do.

It really is difficult to paper over the faults. I liken it to two large planets hurtling away from each other at high speed in the opposite direction.

The euro will, I trust, see the end of the EU - can't come fast enough for me.

By the way, the ECJ might not be an associated body of the EU BUT it is in all but name

depressingly yours,

Anonymous said...

An unelected Court makes judgements that support an unelected commission, against a democratic nation, and this is a group who talk about lack of democracy in hungary and Turkey, you couldn't make it up

Open Europe blog team said...


Thanks for the comment. It’s surprising in the context of the previous opinion by the Advocate General siding with the UK – as we say the majority of cases follow these opinions.

In the wider view of the court we’d agree it’s not that surprising since it does tend to side with EU institutions. This is why we continue to push for further institutional safeguards for the UK and other non-eurozone countries in particular.

Unknown said...

This ruling does cause some concern, not least because of the 'told you so' responses in this correspondence.
IMHO the UK government should make far more direct attempts to bring enough other EU members to its viewpoint that the EU is taking away too many national rights. The solution is to have a group of countries that want to preserve their rights as to have a working majority within the EU.
Is that realistic? I believe it is not only possible, but probable, not least when one views the voters' apathy to the EU - and the traditional manner for national governments to jump to protect their 'euro sausage' actions in whatever variant.
And just in case anyone thinks this may be relevant, this would bring a much more acceptable level of true democracy - and meaning -to the EU structure. The Commission is not there to run the EU; that is the role of the governments.
The UK would have enormous problems outside of the EU. There are some problems inside it; better to work to change those than give up suffer the consequences.

christhai said...

Raoul said the ECJ's judgement raises once again the question that the ECJ is a political Court.

No Raoul, there is no question.

The ECJ is the EU Commission's Court and will do as the Commission instructs.

The good news is that it is another nail in the EU's UK coffin.

christina speight said...

Since this was put up yesterday I have seen the most astonishing confession by the Commission itself that its whole economic policy is a lunatic disaster because of the Euro. (The 496-page report, “Employment and social developments in Europe 2013”)

"Euro 'increasing unemployment and social hardship', says EC

Deepening economic divisions between North and South, rich and poor
eurozone countries threaten to undermine the European Union itself, report states

The report also concludes that internal devaluation is not working and has fuelled continued recession in the eurozone 
- - - -
Europe’s single currency is fuelling inequality, and the loss of sovereignty entailed in eurozone membership has led to “increased unemployment and social hardship” in many countries, a European Commission report has revealed.
- - - - The stark findings, published by Laszlo Andor, the EU’s social affairs commissioner, - - - -

What it boils down to is that the EU doesn't give a damn about the sufferings of Europeans as long as its megalomaniac drive towards a megastate is intact and the crassly stupid Euro survives.

Read more on:

Rik said...

@Chris Williams
1. Care to explain what these so called huge problems are that the UK would face outside the EU?
Tbo I donot really see them.
The by far largest issue is that the freetrade zone stays in tact. And very few doubt that that will not be the case if there would be a Brexit.

Anyway change will not happen when there is no pressure on the kettle. Which means like at least some politicians understand that you should be able to walk away when further talk is useless or mere cosmetical.
The way you propose should have been started a decade or so ago. Things have now come under timepressure. The UKs population accepts very reluctantly a 2017 referendum on what should be concrete reneg results. Totally unrealistic that a 'talk the talk' way will a) come up with results that are even close to acceptable and b) definitely not before or in 2017.

2. One thing that this shows is that the EU needs a major overhaul including of its institutions and that means including its judiciary.
Also from the rule of law perspective. Countries sign up to things and lateron it appears they have signed up to double what they originally thought. Like in this example or with the ECB mandate. The German population agreed with the Euro, because of certain promises. Now they end up with something completely different. No doubt with many that the Court would sanction this powergrasp as well.

3. What this does imho is give an excellent start to build a further platform with the UKs business sector. Why there should be change and considerable one in the first place. Second that the UK might even out of the EU be an excellent basis for business in Europe.
-Stable legal system and not a kangaroo jurisdiction.
-Cut of a lot of unnecessary red tape. Look at the Mercedes case now. Completely ridiculous how something like that can be brought before a court. Totally unlikely that Daimler would have started this if they were not worried for safety in the first place. Nearly certain that simply the legislation sucks (and should be changed for safety reasons mainly) what we get however is basically blind enforcement.
-high taxes. Europe is running high speed in the even higher taxes trap. Aging hardly taken care off; no structural measures to become competitive nearly all is tax increases to close the gap. And the biggy the bill from the South still has to come. Simply points into one direction higher taxes and basically with the only 2 groups that can bring in real revenue (and not cosmetic 75% stuff, which brings hardly in the amounts needed and messes up more on the other side): middleclasses and business (rest if no cuts are made like now is peanuts).