On January 22, the European Court of Justice (ECJ) dismissed the UK's court challenge to the Short-Selling Regulation (SSR). In an action brought before the European Court of Justice in 2012, the UK claimed that ESMA’s powers to adopt emergency measures relating to the financial markets of the Member States in order to regulate or prohibit short selling went against general EU principles. The UK believed that the very large measure of discretion given to ESMA relating to this matter, was of a political nature since its intervention could not be aimed at harmonising financial stability measures across member states.
The current ESMA regulation, however, adopted in 2012 by the EU, permits the implementation of harmonization measures necessary for the establishment and functioning of the internal market. ESMA is also vested with certain powers of intervention, in which the right to ban short-selling practices in EU member states’ financial markets is included.
The ECJ rejected the UK’s arguments ruling that the SSR and the powers given to ESMA did not exceed its original authority and pointing out that the exercise of the powers by ESMA is circumscribed by various condition which limit ESMA’s discretion.The ECJ stressed thus that ESMA can only intervene in markets if there is a threat to cross-border stability and if “no competent national authority had taken measure to address the threat”.
Whilst both ESMA and the European Commission welcomed the ruling, a spokesperson for HM Treasury said this was a disappointing judgment since the European institutions have “consistently said [they] want tough financial regulation that works but that any powers conferred to EU agencies must be consistent with the EU treaties and ensure legal certainty”.