The UK government wants to get rid of European Union restrictions on the short-selling of UK government bonds, part of a broader post-Brexit divergence from the bloc.
(Bloomberg) — The UK government wants to get rid of European Union restrictions on the short-selling of UK government bonds, part of a broader post-Brexit divergence from the bloc.
The nation’s Treasury proposed to scrap the European rules placed on investors taking short positions in government debt or credit-default swaps, which it says have harmed liquidity. The UK said it originally raised concerns about the regulation when it was still part of the EU, abstaining from voting in favor of the package.
The curbs, a response to the European government debt crisis, ban so-called naked short selling of government bonds, meaning all short sales must be covered. Firms must disclose significant short positions, while they can only enter into a sovereign CDS transaction if it does not lead to an uncovered position.
“Short selling of sovereign debt and owning sovereign CDS generally contribute to the healthy functioning of sovereign debt markets, promoting liquidity and facilitating price discovery,” the Treasury said in the consultation paper Tuesday. “While the government sees a clear purpose for covering requirements for the short selling of shares, it is not necessarily the case that the same requirements should apply to sovereign debt markets.”
It’s the latest in a series of proposals for the UK to diverge from the EU on financial regulation. Those include rolling back a law that governs how firms can charge clients for research, relaxing ring-fencing capital rules, and taking a different path on sustainable finance regulation.
The UK is consulting separately on EU-era rules around short-selling in equities. Stock markets should be treated differently owing to the larger size of the UK bond market, which makes the risk of the amount of short selling of gilts exceeding the nation’s £2.4 trillion debt stock “almost non-existent,” according to the Treasury paper.
The government said the Financial Conduct Authority would still have power to impose a sovereign short-selling ban in exceptional circumstances. The consultation closes August 7.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.