EU urged to join global action on naked short selling

Arlene McCarthy

Labour Euro MPs will vote on a crucial draft law aimed at bringing an end to risky and destructive naked short selling next week (Monday 28 February).

Short sellers borrow shares or bonds hoping their price will fall. They would for example borrow 20,000 shares and sell them on for a £1 each. Then they wait for the value to collapse. If the share prices falls by half they would then buy the shares back at 50p each. They then return the shares to the broker, making a tidy £10,000 profit minus any fees incurred. 

With naked short selling the sellers don’t either own or borrow the assets. They sell a ‘promise of shares’. They then wait for the value to collapse and hope if it does that they can buy the shares they have already sold. 

Vice Chairwoman of the Economic and Monetary Affairs Committee, Arlene McCarthy said: “Naked short selling is a part of the questionable culture in the financial system that got us into the economic crisis in the first place and as such must be tackled.”

“The US, Japan, Hong Kong, Australia and Brazil have already prohibited naked short selling so the EU should follow global best practice.”

On Treasury and Tory Euro MPs opposition to the law Ms McCarthy added: “George Osborne talks tough on the need for reform but when it comes to action he is not prepared to protect investors and the stability of the real economy.”