A critical analysis of the regulation (of the European Parliament and of the Council) on short selling and certain aspects of credit default swaps

Abstract

The reader is introduced to the financial landscape which the Regulation seeks to legislate, this is supplemented by a comprehensive overview of the role and functions of financial markets, a brief history of financial markets and an overview of the driving evolutionary factors which led to landmark changes thereto. To conclude the introductory part of this study an examination of IOSCOs principles of regulating securities markets and an analysis as to why investors invest is provided. The reader is then presented with a primer on Shorting and CDSs, the functions of such and what they bring to the market both in terms of economic benefits and associated risks. An assessment of the uses of Shorting and CDSs for hedging, speculation and arbitrage purposes is also provided. An analysis of the rationale behind the chosen regulatory framework and an examination of the Regulation in parallel with an examination of the salient regulations falling within US regulatory framework is also provided. The examination of the scope and applicability of the Regulation is supplemented with an analysis of the instruments which fall within its' remit, contrasted by means of an analysis of the exceptions from the scope of the Regulation. Following an analysis of the 'theoretical' aspect of the Framework an analysis and critique of the practical side of the Regulation is carried out and is followed by an examination of the role and powers granted both to ESMA and the relevant NCAs under the framework. The analysis will seek to establish whether regulatory intervention in this particular area of financial markets is actually required or whether the Regulation is just another measure in response to a crisis which will hinder rather than help the market.