EU Set To Ban Some Sovereign Bond Trades

The EU's Economic Affairs Committee (EAC) has approved a draft bill that will ban certain trades in sovereign bonds and require that traders settle their uncovered positions by the end of each trading day.

MEPs also inserted a requirement that short sale transactions be reported less often, but beefed up the rules to ensure hefty fines.
 
The practice of "short selling" -  whereby speculators bet on a fall rather than a rise in the price of a security to make a profit - was heavily involved in Europe's recent sovereign debt crisis, one that almost crippled Greece.

As a result, the EU took steps to curb speculation and improve transparency in the financial services sector.

One day to settle "naked" short sales

Although the draft bill does not entirely ban "naked" short selling, it sets a very tight deadline for converting a naked short sale into a short sale. 

By the end of the trading day, any naked short sales undertaken must have been converted, states the EAC's position.  A seller failing to make the conversion on time would incur fines which, the amended text states, "must be sufficiently high to prohibit any profits being made". 

Next steps

MEPs primarily involved with steering the regulation through Parliament will now sit down with Member States to thrash out a deal which can be then be tabled for a plenary vote in the coming months. 

The regulation is expected to be in force by 2012.