Skip to main content

Hedge funds vs Greece: lobbyists want “cheap ticket” to speculation

This summer Greece's financial authorities fined 20 hedge funds for speculating against the Greek economy. Now, the main global lobby group for hedge funds is trying to tweak the EU's rules so they can have a free play in the future.

Corporate Europe Observatory

Global hedge funds attacked Greek banks in the early part of 2015. These were the months when the Greek economy was particularly fragile and in danger in the aftermath of the change of government in January of that year. In the wake of years of continuing economic crisis and harsh austerity, the new government was battling with its creditors to get a new and better deal from the EU. In response to Greek intransigence and hesitance to sign up to austerity programmes, the European Central Bank issued regular threats that liquidity to Greek banks could be cut off.

At this point, 20 hedge funds – including JP Morgan Securities and Quantum Partners – moved in to do what they always do: speculate to make money. They sold Greek bank shares short, spreading doubt about the resilience of Greece's banking sector. Out of fear of an economic collapse, the Greek financial services authority (the Hellenic Capital Market Commission, HCMC) stepped in to stop them, handing out fines to all 20 from €10,000 to €460,000.

In response, the financial lobby is now trying to avoid a repetition. The hedge funds’ lobby group AIMA (Alternative Investment Management Association) is now trying to blow a hole in the EU rules on “short selling” so they can escape similar blocks and sanctions in the future. This can be seen from documents obtained by Corporate Europe Observatory from the EU financial regulation agency ESMA (European Securities and Markets Authority).

Naked short selling

The method used by the hedge funds is called 'naked short selling' and it is rather simple: when you do naked short selling, you borrow the shares and sell them quickly. That enacts a drop in the price, which allows you to buy the shares back at a lower price. You make a profit, but drop the company whose shares you are speculating against in trouble.

This is what the Greek authorities deemed the hedge funds had done to their banks. These hedge funds had acted as if they owned shares in a number of Greek banks, and sold them for a considerable sum.

But there are rules about naked short selling at the EU level. These say that naked short selling can be restricted if it puts financial stability at risk, which applies in the case of the Greek authorities' measures. It might sound as if such an emergency brake is available at need, but the European rules are not robust, and were never intended to put a stop to speculation as such. The regulation entitles hedge funds to apply many different methods to get a green light for short selling, and there are many loopholes that enable hedge funds to conduct naked short selling. One of them is the many ways in which you can claim you own or possess a share and are not just outright pretending. This is where AIMA has decided to push the European institutions and to try to blow a hole in the rules. Or as put to CEO by a former lobbyist for the hedge fund industry, they “are trying to get increase their options to speculate allowed within the SSR.

A cheap ticket to speculation”

In a letter AIMA raises doubts about the Greek Government's measures by claiming that in a way, the hedge funds did indeed own the shares: “According to the Short Selling Regulation [SSR], restrictions on uncovered short-sellling [ie naked short selling] apply to the sale of a share or debt instrument 'which the seller does not own at the time of entering into the agreement to sell' (SSR Article 2 (1)(b)). In the cases described in this letter, the entities in question sold shares they owned following participation in a rights issue and yet were found by the HCMC to have breached the SSR”.

So, this is AIMA’s argument: as the hedge funds participated in a “rights issue”, they owned the shares. So, what is a rights issue? And does AIMA's argument that “participation in a rights issue” amounts to ownership have credibility?

A rights issue is a guarantee from an issuer (could be a bank or another company), that if new shares are issued, you will be able to buy them. It is frequently used as a guarantee to shareholders that their share in the company will not be watered down by issuing new shares they cannot obtain. But possessing a rights issue does not make you the owner of extra shares, and you cannot use it to buy more shares unless shares are actually issued for sale. To claim that a rights issue equals ownership is creative at best. Essentially AIMA is looking for a loophole and using this as a way to make it easier for hedge funds to engage in naked short selling. This would enable them to avert the kind of bans imposed by the Greek financial authorities.

The hedge funds are trying to get a cheap ticket to speculation”, a former lobbyist for the hedge fund industry told CEO.

Hedge funds want EU loopholes harmonized

The EU's Short Selling Regulation was adopted in 2012 after a lengthy and heated debate. It provides ample space for short selling, as ownership of a share is actually not a precondition: “alternative provisions resulting in similar legal effect” suffices. But the EU definition of what a “similar legal effect” is, has not included rights issues so far. Or rather, the definition of the coordinating EU agency, the European Securities Markets Authority has not directly addressed the issue. AIMA is asking ESMA to do exactly that, and argues that some member states do include “rights issues” in their definition of ownership.

So far, however, ESMA has approved the Greek measures. And the ESMA press office explains to CEO that thus far, the agency has not addressed the legal issues raised by AIMA. And for “rights issues” to become the cheap ticket to speculation across Europe, harmonization of the implementation of the rules across EU member states would be required – a demand tabled by AIMA years ago. But should ESMA decide in favour of the hedge funds – or if they are pressurized to do so - it would be a first step towards another big loophole for speculators.

If countries like Greece, whose population are already suffering the profound effects of a prolonged economic crisis, are to protect their economies from predatory short selling from global hedge funds the ESMA needs to firmly reject the financial lobbies' appeals, and instead use the occasion to consider how rules can be strengthened so hedge funds will not feel tempted to try another attack such as the one on the Greek banks.

Source:

Comments

Popular posts from this blog

Donald Trump: the last symptom of a system that is about to collapse

globinfo freexchange
In another interesting interview with Chris Hedges, Richard Wolff explains why the Trump presidency is the last resort of a system that is about to collapse:
Finally, if everybody tries to save themselves (protection), we have a historical example: after the Great Depression that happened in Europe. And most people believe that it was a large part of what led to WWII after WWI, rather than a much saner collective effort. But capitalism doesn't go for collective efforts, it tends to destroy itself by its own mechanisms.
There has to be a movement from below. Otherwise, there is no counter force that can take us in another direction.
So, absent that counter force we are going to see this system spinning out of control and destroying itself in the very way its critics have for so long foreseen it well might.
When Trump announced his big tariffs on China, we saw the stock market dropped 700 points in a day. That's a sign of the anxiety, the danger, even in the min…

Austria has just returned to the Middle Ages

The Austrian government confirmed that the far-right is an emergency reserve of neoliberalism
globinfo freexchange
Haven't you yet convinced that the nationalists and the far-right are the most faithful dogs of the big capital? Then, look at what just happened in Austria. In the end, despite the mass protests in Vienna, Austrian employers will be able to introduce 12-hour working day without increasing wages. The relevant law adopted by the Parliament of the country, reports on Friday, July 6.



What's the first thing that Emmanuel Macron did after his election in France? He rushed to complete what Francois Hollande - the other puppet of the neoliberal establishment - had started: destroy trade unions, completely deregulate the labor market.
Yet, the media in France were promoting him as a 'progressive' (what a joke) who will stop the far-right threat.
In reality, big capital’s reserve, Marine Le Pen, is waiting in the 'bench', ready to take action any moment, now tha…

The vicious circle of modern slavery

globinfo freexchange
It sounds unbelievable, but in one of supposedly the most advanced European nations, the government plans to allow the working day to be extended to 12 hours!
We are talking about Austria, where tens of thousands of people in Vienna packed the streets on Saturday to voice their opposition to loosening labor laws to allow for a 12-hour workday and subsequent 60-hour workweek. Police in Vienna said some 80,000 people took part, while the trade unions that organized the protest said some 100,000 people attended.
What can someone say about this unimaginably absurd decision?
In an age of all this advanced technology, with AI and hyper-automation, people should work less hours, enjoying all the benefits and extra free time for their families and themselves. Yet, in the homeland of Austrian economics that led us to brutal neoliberalism, it seems that the elites push things to the opposite direction. Why? Is it just because human labor can't compete the machines?
Think ab…

The idiotic circus of terror leads us to the final collapse

There is a familiar checklist for extinction and we are ticking off every item of it. The idiots know only one word: more. They are unencumbered by common sense. They hoard wealth and resources until workers cannot make a living and the infrastructure collapses. They live in privileged compounds where they eat chocolate cake and order missile strikes. They see the state as a projection of their own vanity.

failed evolution
The idiots seen in the decay the chance of personal advancement in profit, takeover in the final days of crumbling civilizations.

Idiot generals wage endless unwinnable wars that bankrupt the nation.
Idiot economists call for reducing taxes for the rich and cutting social service programs for the poor. And project economic growth on the basis of myth.
Idiot industrialists poison the water, the soil and the air. Slash jobs and depress wages.
Idiot bankers gamble on self-created financial bubbles and impose crippling debt peonage on the citizens.
Idiot journalists and …

Bernie's revolution starts to wipe out the establishment with a huge political earthquake!

globinfo freexchange
It happened! A 28-year-old super-progressive beat the personification of the establishment in the Democratic primary! Alexandria Ocasio-Cortez won the Democratic primary in New York's 14th congressional district, defeating the establishment baron, Joe Crowley. This has been described by many, rightfully, as the biggest upset victory in the 2018 midterm election season.
What are the origins of this amazing, unprecedented result in the US political process?
We can find them in the 2016 Democratic primaries. Back then, Bernie Sanders put the foundations of a truly progressive movement that could beat the neoliberal establishment. We wrote then that Bernie speaks straightly about things buried by the establishment, as if they were absent. Wall Street corruption, growing inequality, corporate funding of politicians by lobbies. He says that he will break the big banks. He will provide free health and education for all the American people. Because of Sanders, Hillary w…

Corporate media pundits depict establishment's evident panic in front of Alexandria Ocasio-Cortez's huge victory

globinfo freexchange
Shortly after recent political earthquake with Alexandria Ocasio-Cortez's huge victory, the establishment apparatus started to react as expected.
TYT immediately responded by identifying the common narratives used by the corporate media pundits in the following video:

In this video you can track at least two kinds of typical 'arguments' provided by the neoliberal ideological framework. We wrote several times in this blog about such arguments that their carriers present them as being perfectly rational using 'logical leaps', while in reality, they are deeply irrational.
In the first argument, Steve Schmidt labels progressivism as 'dishonest', simply because it fights for free education, free healthcare, etc. The basic 'argument' is the usual: ordinary people can't have such things because of the enormous debt. Of course, the logical leap here is the fact that the neoliberal pundits always avoid to refer to the billions in bailout…

Key parts of the Matrix: the faithful little soldiers of the mainstream media

globinfo freexchange
Ludivine Bénard describes almost perfectly a key part of the Matrix of our times:
Journalistic titles hire journalists whose social background – socially, culturally, educationally and morally – fits perfectly with what the current capitalist order asks for.
People working in media are mostly middle-class types with the same interests, favouring consumerism, hedonism, libertarian individualism and unconditional Europeanism from Brussels. And they're all subject to this form of political illiteracy – they reduce reporting on politics to reporting on political personalities. The journalists and pollsters in the press turn political life into a theatrical stage, where personalities just endlessly talk and debate.
All that talk drowns out any serious criticism of the system.
The French people have been indoctrinated that way for decades – we've had more than 30 years of a certain consensus between the centrist powers of the conservative right of Les Républicains…

The 'anti-establishment' Trump admits he is more elite than the elite!

globinfo freexchange
He said it!
From the first moment in this blog, even before Trump's election, we repeatedly said that Donnie is only a reserve of the establishment.
Finally, he essentially admitted that he is more elite than the elite! Or, more establishment than the establishment if you like. During a campaign rally in Duluth, Minnesota, Trump said "Why are they elite? I have a much better apartment than they do. I'm smarter than they are. I’m richer than they are. I became president and they didn't."
Kyle Kulinski is right. Donald Trump wants to be fully integrated in the Establishment Inc. He wants to be loved by the elites, join them. He sends signals to them, saying 'I did what you want, why don't you play with me?'.
The message to the American citizens is this: do not trust the orange clown. In case that will grab your vote for a second term, he will do whatever the establishment wants, and more. Meaning, more tax-cuts for the rich, more for-pro…

Three years from the coup against Greece by the European Financial Dictatorship

globinfo freexchange
Three years passed (July 5, 2015) since the European Financial Dictatorship through the European Central Bank (ECB) and its head Mario Draghi, was forced to proceed in an open financial coup against Greece.
The start of current decade revealed the most ruthless face of a global neo-colonialism. From Syria and Libya to Europe and Latin America, the old colonial powers of the West tried to rebound against an oncoming rival bloc led by Russia and China, which starts to threaten their global domination.
Inside a multi-polar, complex terrain of geopolitical games, the big players start to abandon the old-fashioned, inefficient direct wars. They use today other, various methods like brutal proxy wars, economic wars, financial and constitutional coups, provocative operations, 'color revolutions', etc.
In this highly complex and unstable situation, when even traditional allies turn against each other as the global balances change rapidly, the forces unleashed are abs…

The real E CORPs seek complete control of global food supply

Who controls the food supply controls the people; who controls the energy can control whole continents; who controls money can control the world
globinfo freexchange
In the famous TV series, Mr. Robot, E Corp (which the central character, Elliot Alderson, perceives as Evil Corp), is an extremely powerful company that controls societies through consumer debt.
Yet, in the real world, a couple of mega multinationals could be proved even more ruthless. In another interesting report, James Corbett exposes the ultimate goal behind the merge of two of the biggest corporations in the food, medicine and agricultural sector. These are the real ECORPs:
What does a pharmaceutical giant have to gain from buying out and merging with an agrichemical giant, especially one that carries as much baggage as Monsanto?
If the connection between these corporate behemoths seems tenuous, then perhaps the key to understanding it is presented in that 1995 quote from former Monsanto CEO Robert Shapiro: “We’re talking…