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UK loses EU case on short selling ban
22 January 2014
European Court of Justice rules that Esma’s emergency powers to ban short selling are legal and refutes the legal opinion of its advocate general
The European Court of Justice (ECJ) has ruled that emergency
powers of the European regulator to ban short selling in member
states are compatible with EU law.
issued the statement following its judgment on a
high-profile case brought forward by the UK against the
European Parliament and European Council.
The case has attracted a great deal of attention in recent
months and its outcome was widely expected to indicate the
development of future controversial proposed EU laws such as
the financial transactions tax (FTT).
The ECJ ditched the legal opinion of its advocate general Niilo
who last year branded the short selling ban powers as
illegal and called for them to be annulled immediately. The
move may come as a surprise to some, given that opinions of
advocate generals - while not legally binding - are the
suggested decisions for the ECJ and are followed in most
Under Article 28 of the EU regulation establishing the European
Securities and Markets Authority (Esma) as the Europe-wide
financial regulator, powers to ban short selling across all
member states were granted. These powers were derived from
Article 114 TFUE, "which allows for the adoption of harmonising
measures where necessary for the achievement and functioning of
the internal market".
The UK challenged this on the grounds that Article 114 TFUE
was not the correct legal basis for the Esma's powers, while
also arguing that Esma's ability to ban short selling went
beyond EU constitutional law principles on the delegation of
powers by the institutions.
Jääskinen's legal opinion agreed that Article 114
TFUE was not the correct legal basis for Esma's powers under
Article 28 because the short selling powers were intended as an
emergency measure rather than a market harmonisation
He instead suggested that Article 352 TFUE be used as the basis
for Esma's short selling powers. He said if the ECJ should
decide to stick with Article 114 TFUE, it should disregard the
UK's argument over the constitutionality of the powers, since
Article 28 includes specific safeguards over the type, scope
and duration of Esma emergency measures.
However the ECJ decided that Article 114 TFEU is the
"appropriate legal basis" and that Article 28 "does not confer
any autonomous power on Esma that goes beyond the powers
granted to it". The court also pointed out that there are
various conditions and criteria that limit Esma's ability to
exercise these powers, for example there must be a threat to
financial markets or stability of the EU financial
The UK has also publicly opposed the proposed FTT, with a UK
House of Lords committee recently calling it "alive and
deadly". The UK chancellor George Osborne has launched lawsuits
over both the FTT and the EU cap on bankers' bonuses.
The UK has opposed the tax as it will be obliged to collect the
levy if UK firms trade with firms domiciled in the FTT zone,
which it argued was illegal. That position appears to have been
strengthened by a leaked legal opinion last
September, which revealed that EU lawyers believed the FTT