Barnier passes timid curbs on rating agencies

Published on 16 November 2011 at 11:41

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“Too little, too late”: the ratings agency reform package presented on 14 November by European Commissioner for Internal Market and Services Michel Barnier, the third in three years, does not satisfy La Tribune. Contrary to expectations, Barnier dropped a key proposal to suspend ratings of countries negotiating bailouts.

According to the business daily, Barnier’s Scandinavian colleagues, who were “shocked by the very idea of a ban on issuing ratings, which they deemed to be an infringement of freedom of speech, were behind opposition to the measure.” For journalist Jean Quatremer, Michel Barnier was forced to back down in the face “frenzied lobbying by the ratings agencies.”

The Commissioner’s text aims to reduce financial institutions dependence on ratings by the world’s three biggest agencies, Standard & Poor's, Moody's and Fitch: “The goal is to oblige investors to conduct their own evaluations, to create a European Ratings Index (EURIX) and to introduce forced rotation of ratings providers or the simultaneous taking into account of several ratings so as to avoid automatic investment decisions in the wake of downgrades,” notes the daily.

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“The recurrent issue of a European ratings agency did not re-emerge,” remarks La Tribune, “much to the disappointment of socialists and even certain German liberals in the European parliament,” an institution that will also adopt the text along with the Council of Ministers.

On 14 November, parliament voted to curb short selling:

...transactions that entail the sale of an asset in advance of ownership in the hope of buying it in the future at a lower price will still be permitted but traders will now have to prove that they have a reasonable expectation of being able to borrow the shares they have sold at the moment of delivery which will have to occur sooner.

The European Financial Markets Authority (EFMA) will also have the power to ban short selling in the event of widespread market tensions, which will prevent a repeat of uncoordinated decisions by Europe’s 27 member states like those that were taken last summer when the markets were in a state of crisis. Sovereign debt trading will be the subject of special attention and highly speculative transactions will be prohibited.

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