17 Sep 2010

Restrictions on financial trading planned

10:01 am on 17 September 2010

The European Commission has announced plans to restrict the financial practices blamed in part for precipitating the global financial crisis.

The commission wants to create a watchdog to monitor the derivatives market - products used to make bets on assets without buying them.

Officials also want to assess the extent of short-selling, when traders bet on asset prices falling.

The BBC reports derivatives and short-selling are viewed by some as contributing to the eurozone debt crisis, which led to major market instability.

In May, Germany made a surprise decision to temporarily ban some types of short-selling of financial products.

Because they are traded over-the-counter, or off-exchange, derivatives escape the watch of regulators.

New watchdog

Under the commission's proposals, a new watchdog would be created to monitor the exchanges.

Short-selling - a technique that sees investors borrow an asset, and then sell it on to the market before returning it back to the borrower with the aim of making a profit - will also be subject to greater regulation.

European single market commissioner Michel Barnier wants to enforce EU-wide regulations that will make investors disclose more details of their so-called "short positions" in shares to a central database.

The suggested new rules also include a requirement that these trades go through a central clearing house, to ensure that investors have enough cash to pay up if they lose the bet.

Mr Barnier has underlined the fact that short-selling itself can be useful and legitimate, but says it can become a problem when people deliberately manipulate a market.