EUROPE - Securities-lending specialists believe greater regulation for short selling is necessary, while EU representatives have called for greater coordination between each member state's measures.

Speaking at the ISLA conference in Portugal, Cristina Dias, financial attaché at the European Union, said rules already existed in European countries on an individual basis and that those measures would need to be coordinated to improve regulation of the securities financing market.

"We realised during the crisis there were some loopholes and several infrastructures around securities financing we didn't know anything about," she said.

"A variety of measures have been adopted using different powers by some member states, while others have not taken action.

"There is currently no legislative framework at European level to deal with securities financing in a coherent way."

She added: "The new legislation will have to ensure more centralisation, coordination and harmonisation.

"Our role now is to make sure the new regulation that will be implemented will not be too intrusive into what national regulators should do."

Hannah Gurga, deputy director securities and markets at the Treasury, shared her views.

"The UK has already opted for a short selling disclosure, so a EU regulation on this issue makes perfect sense," she said.

Chris Bates, head of financial services and market practice at law firm Clifford Chance, warned: "If we don't have a common legislation, all the 27 local regulations would move to an even more uncorrelated measure."

However, some delays have occurred in the introduction of the new regulation, the main reason being directly linked to a difference of opinion about the European Securities and Markets Authority (ESMA).

While the European Parliament and the European Commission have supported the ESMA solution and look to support its powers over national supervisors, the parliament would give the authority the right to conduct unannounced, on-site inspections of financial institutions.

A proposal introduced in September last year by the Commission aimed to give ESMA permission to make public short selling positions that exceeded 0.5% of a company's market value.

Additionally, ESMA would also have permission to ban short selling for three-month periods, curb naked short selling and regulate the derivatives market more tightly.

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