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Investment

Temporary EU intervention in short-selling legal, court says

The European Court of Justice (ECJ) has ruled it's legal for the EU to curb short-selling. The dubious practice of selling what you don't own had been blamed for worsening the financial crisis.

The European Union was allowed to intervene in short-selling transactions in emergency situations, the European Court of Justice ruled Wednesday.

The ECJ thus confirmed the powers granted to the European Securities and Market Authority (ESMA) in 2012, a move that had been contested by Britain. The UK had argued the ESMA had a "very large measure of discretion of a political nature" which went beyond ordinary EU provisions.

But the court dismissed that complaint, emphasizing, though, the authority's powers were limited by various conditions and criteria.

Restrictions in place

Europe's shadow banking system

It said the body could only restrict activities and with it short-selling, if they threatened financial markets and the stability of the bloc's financial system. In addition, it could only step into action, if national authorities had not already done so.

"The powers available to ESMA are precisely delineated and amenable to judicial law," the ECJ said in a statement.

Short-selling is the sale of shares investors don't own, but that are promised to be delivered as market actors speculate on falling prices and hope to cash in on the price difference. The instrument had been identified by many economists as a factor exacerbating the global financial crisis as it contributed to the freefall of share prices.

hg/mz (dpa, AFP)

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