News
BackAfter a long break and in the midst of the Euro crisis and the anti-bank movements, the EU reports back with proposals on regulating the financial markets. Following a year of negotiations, “naked” short selling of European government bonds is to be restricted. And the deregulation in respect of trading with financial instruments, which had only been implemented three years ago, is to be partly reversed. The greatest problem with turning back the wheel of history: the City of London and its European allies have fully put the brakes on.
Shortly before the meeting of the EU Heads of State and Government, which has been scheduled on a Sunday when the stock markets are closed in order not “to disturb” the financial markets, there is once again news on regulating the financial markets at EU level. It is a known fact that today the clear commitment by the world’s top politicians, which followed the outbreak of the 2007 financial crisis, i.e. to rein in the financial markets, is almost forgotten. A few Member States have watered down all proposals of the French Commissioner Michel Barnier, who definitely makes an effort, beyond recognition under the influence of financial lobbyists and their political allies. Whilst the old speculation game is as happily played today as it was before the crisis, the Heads of State and Government consider new millions to aid the major banks.
Hence, the headline that Parliament and Member States had agreed to ban speculations on state bankruptcies comes at a convenient time. This specifically concerns so-called naked short selling and credit default swaps, some of the inventions the financial industry is so proud of. In case of naked short selling, an “investor” (speculator) bets on falling share prices. Credit default swaps are securities, which insure (companies but also states) against a debt default. According to the view of many experts, betting on falling prices of government bonds of European countries has contributed to the aggravation of the Euro crisis, which is of course vehemently denied by the financial investors.
In spite of this, some Member States, among them Germany and France, have decided to ban pure bets on the depreciation of government securities and bank shares, which are not even in the possession of the speculators (so-called naked short selling), within their territory. About a year ago, the Commission issued a proposal on the subject, which, however, did not include a ban on these practices. The credit belongs to French MEP Pascal Canfin of the Greens, who persuaded a majority of parliamentarians to support a ban on naked short selling of government securities. The problem here: the governments of the 27 Member States must also agree to such a ban. And although there are many governments ready to take action, one can rely on one thing: the British, under the influence of the City of London and their allies (The Netherlands and often Czechia) are bound to say “njet”.
The same applies to this case. However, due to the fact that a compromise between Parliament and Member States is necessary to move things forward at all, this subject too was softened. Although a ban exists, it is possible for individual countries (such as Great Britain) to opt out. This ensures that hedge funds, at least in London, can continue to speculate on the bankruptcy of EU Member States.
Another major issue, which the Commission intends to tackle this week, is the so-called Markets in Financial Instruments Directive MIFID. In the heyday of popular belief in the magical powers of financial capitalism, Commission and Member States completely liberalised the trade with financial products, which in the nineties was still carried out at the stock markets, both in an orderly manner and under government supervision. Argument: more competition between trading platforms reduces the prices for investors. This naive belief was immediately punished. Only 3 years after the MIFID had been implemented by the Member States, the Commission has to backpaddle. The comment of the Commission, somewhat convoluted in its draft, but nevertheless not to be surpassed in respect of clarity: “Earlier assumptions that minimal transparency, oversight and investor protection is more conducive to market efficiency no longer hold”. A declaration of bankruptcy.
What had happened? Being in the shadow of traditional stock exchanges, unregulated and unsupervised mini exchanges, electronic trading platforms and other private market places sprung up like mushrooms in many Member States, in most cases belonging to major or investment banks. This not only made, as the Commission had to admit, trading with securities often more expensive for the end customer; keeping track of the market price - one of the central functions of a market – was also lost in the face of this lack of clarity. Murky transactions were also carried out behind the back of the supervision in the wake of the new trading places.
Now the Commission promises to see reason and to improve things. The question is whether the City of London and Co. will just idly stand by.
Hence, the headline that Parliament and Member States had agreed to ban speculations on state bankruptcies comes at a convenient time. This specifically concerns so-called naked short selling and credit default swaps, some of the inventions the financial industry is so proud of. In case of naked short selling, an “investor” (speculator) bets on falling share prices. Credit default swaps are securities, which insure (companies but also states) against a debt default. According to the view of many experts, betting on falling prices of government bonds of European countries has contributed to the aggravation of the Euro crisis, which is of course vehemently denied by the financial investors.
In spite of this, some Member States, among them Germany and France, have decided to ban pure bets on the depreciation of government securities and bank shares, which are not even in the possession of the speculators (so-called naked short selling), within their territory. About a year ago, the Commission issued a proposal on the subject, which, however, did not include a ban on these practices. The credit belongs to French MEP Pascal Canfin of the Greens, who persuaded a majority of parliamentarians to support a ban on naked short selling of government securities. The problem here: the governments of the 27 Member States must also agree to such a ban. And although there are many governments ready to take action, one can rely on one thing: the British, under the influence of the City of London and their allies (The Netherlands and often Czechia) are bound to say “njet”.
The same applies to this case. However, due to the fact that a compromise between Parliament and Member States is necessary to move things forward at all, this subject too was softened. Although a ban exists, it is possible for individual countries (such as Great Britain) to opt out. This ensures that hedge funds, at least in London, can continue to speculate on the bankruptcy of EU Member States.
Another major issue, which the Commission intends to tackle this week, is the so-called Markets in Financial Instruments Directive MIFID. In the heyday of popular belief in the magical powers of financial capitalism, Commission and Member States completely liberalised the trade with financial products, which in the nineties was still carried out at the stock markets, both in an orderly manner and under government supervision. Argument: more competition between trading platforms reduces the prices for investors. This naive belief was immediately punished. Only 3 years after the MIFID had been implemented by the Member States, the Commission has to backpaddle. The comment of the Commission, somewhat convoluted in its draft, but nevertheless not to be surpassed in respect of clarity: “Earlier assumptions that minimal transparency, oversight and investor protection is more conducive to market efficiency no longer hold”. A declaration of bankruptcy.
What had happened? Being in the shadow of traditional stock exchanges, unregulated and unsupervised mini exchanges, electronic trading platforms and other private market places sprung up like mushrooms in many Member States, in most cases belonging to major or investment banks. This not only made, as the Commission had to admit, trading with securities often more expensive for the end customer; keeping track of the market price - one of the central functions of a market – was also lost in the face of this lack of clarity. Murky transactions were also carried out behind the back of the supervision in the wake of the new trading places.
Now the Commission promises to see reason and to improve things. The question is whether the City of London and Co. will just idly stand by.