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PPI: EU proposes crackdown on short-selling

The European Commission has unveiled plans to restrict short-selling and tighten controls on the derivatives market.

In what would be one of the most comprehensive reforms of the financial industry since the economic crisis, the body aims to create a new watchdog which would monitor and control both practices.

Short-selling is where investors sell a consumer's asset in the hope of buying it back at a cheaper price and achieving a hefty profit.

The derivatives market is comprised of products which are used to make bets on assets without buying them, and were once described by billionaire Warren Buffett as "financial weapons of mass destruction."

Under the new regulations, which are set to be introduced in 2012, the new watchdog could issue three-month bans for those who breach short-selling practices, while calling for greater transparency in the derivatives sector.

Michel Barnier, the commissioner leading the proposals, claimed no financial market can afford to remain a "Wild West territory".

"In distressed markets, short-selling can amplify falls, leading to disorderly markets and systemic risks. Today's proposal will increase transparency for regulators and markets," he said.

Posted by John Fieldman

Having worked in the city for 19 years, John's main focus is interest rates and corporate finance ADNFCR-2776-ID-800066847-ADNFCR

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