UPDATE 1-EU executive pushes to beef up markets watchdog

* EU executive resists pressure for outright trading bans

* New watchdogs may get power to suspend short selling

* Draft rules to control speculators due within months

(Adds detail of French law)

By Julien Toyer and John O’Donnell

BRUSSELS, June 11 (BestGrowthStock) – The European Commission will
announce a proposal next week to give watchdogs powers to
control financial speculators but will not meet German and
French demands for trading bans, EU sources said on Friday.

Earlier this week, German Chancellor Angela Merkel and
French President Nicolas Sarkozy wrote to the European
Commission demanding it examine banning some short selling of
shares and state bonds.

But Michel Barnier, the European commissioner in charge of
overhauling financial regulation, is unlikely to bend to
pressure for bans when he announces a rough outline of rules as
soon as Monday.

This will come as a relief to London, which has long argued
against outright bans and would stand to lose most as Europe’s
financial and trading capital.

Instead, Barnier wants to give a soon-to-be-created
pan-European watchdog powers to police markets, intervening if
it sees dangerously large trades.

It would also be allowed to cool down overheated trading
with a temporary ban on short selling.

“The idea is that the authorities have the emergency powers
to … suspend the use of short selling,” said one source with
direct knowledge of the matter.

Politicians have been demanding a crackdown on speculators
ever since Greece ran into difficulties borrowing. Many believe
investors who bet on insurance to cover that country’s
non-payment — Credit Default Swaps — exacerbated problems.

CDS is part of the largely unchartered $600 trillion
derivatives market that ballooned ahead of the global financial
crisis and one that Barnier has promised to deal with
“severely”.

This opaque market, where the only record of many
multimillion euro deals is a fax, has frustrated politicians who
have attempted to control it because there are no central
records of trading.

Germany recently introduced some bans, a move seen as
ineffective because most trading in Europe happens in London.
The surprise move also shocked markets.

On Friday, the French parliament approved a law to give the
country’s regulator more power to clamp down on short selling.

The economy ministry said France’s markets watchdog would
now be able to ban short selling on all financial instruments in
exceptional circumstances. [ID:nLDE65A1EI]

Barnier is working on a set of pan-European rules to be
announced in September for trading in derivatives, which give
investors the option to buy anything from currency to gas at a
fixed price in the future.

Next week, he begins to consult with industry and lobby
groups about the shape of these rules.

He will also propose controls for short selling, which
typically involves an investor borrowing shares and selling them
in the hope that the price will fall and he can repay the lender
with stock bought for less.

Barnier is in an influential position because his staff
write the first draft of all laws to control financial services
and then broker a compromise between the European Union’s 27
countries and the bloc’s parliament.

Investment Analysis
(Editing by Ron Askew/Toby Chopra)

UPDATE 1-EU executive pushes to beef up markets watchdog