305 Germany bans Naked Short-Selling. Britain fights EU hedge fund crackdown

Germany bans Naked Short-Selling. Britain fights EU hedge fund crackdown

(1) & (2) Germany bans Naked Short-Selling
(3) What is naked short selling?
(4) Naked Shorting
(5) Reactions to the German ban
(6) SEC targets naked shorting in Fannie, Freddie amid  howls of 'market interference'
(7) & (8) EU crackdown on Derivatives, Hedge Funds is seen as aimed at City of London
(9) Britain fights EU hedge fund directive
(10) Sir James Sassoon to be Lord of the City of London

(1) Germany bans Naked Short-Selling

http://www.nytimes.com/2010/05/20/business/global/20short.html?src=busln

Germany Takes Lone Stand in Hobbling Riskiest Trades

By JUDY DEMPSEY and DAVID JOLLY

Published: May 19, 2010 

BERLIN — If Germany’s new measures to hamper speculation in European markets were meant to surprise, they succeeded. Just not quite in the fashion officials in Berlin might have intended.

Roundly criticized for shirking a leadership role as Europe grapples with its debt crisis, Chancellor Angela Merkel, in her offensive Wednesday, also included a fiery speech to the lower house of Parliament that combined a demand for governments to assert “primacy” over unruly markets with doom and gloom about what would happen if they failed.

“I’ll boil it down to its core,” she told lawmakers. “The euro is the foundation for growth and prosperity” in the European Union. “The euro is in danger. If we don’t deal with this danger, then the consequences for us in Europe are incalculable.”

Yet even as she spoke, markets were falling in response to Germany’s move late Tuesday against so-called naked short-sellers, closing down around 3 percent in much of Europe. And European officials, caught off guard, were criticizing Germany’s unilateral action — something Mrs. Merkel herself had said just a few days ago would be ineffective in a global market.

“Close cooperation in the E.U. on all issues which have a strong market impact is very important and needs to be strengthened,” the E.U. president, Herman Van Rompuy, told a news conference in Madrid, Reuters reported. He said that he would raise the issue of naked short-selling at a meeting of finance ministers in Brussels on Friday.

In a short sale, an investor sells borrowed assets hoping to buy them later at a lower price and pocket the difference as profit. In a naked short, the investor does so without actually having possession of the assets. Many Europeans have attacked the practice as casino-style speculation that can unfairly disturb the markets.

A number of European countries, including France, Austria, Belgium and Spain, still maintain prohibitions against naked short-selling of shares in their own major financial institutions, first imposed in 2008. But outside of Austria, there appeared to be little immediate enthusiasm for following Germany’s lead into new areas of regulation, including of government bonds.

“There’s relatively little trading of euro-zone government bonds in Paris — it’s more active in Germany,” Christine Lagarde, the French economy minister, told reporters Wednesday. “So we don’t envisage taking measures.”

Germany in fact has long championed European efforts to rein in what it sees as the worst excesses of Anglo-American financial capitalism. But the measures announced Wednesday were also directed at a domestic audience.

Mrs. Merkel was opening debate in the Bundestag on Germany’s contribution to the nearly $1 trillion safety net being set up by the European Union and International Monetary Fund for the euro zone’s weaker members. Once again, Germany will provide the lion’s share of the loan guarantees — nearly a fifth.

Mrs. Merkel has been pummeled in the German media over the previous bailout, which was specifically for Greece, and her coalition is still reeling after its huge election defeat two weeks ago in the state of North-Rhine Westphalia.

But the government’s new aggressive attack on speculators won her admiring headlines as the debate opened Wednesday.

The German financial regulator, BaFin, said Tuesday that it had banned naked short-selling of euro-zone government bonds and was reinstating a ban on naked short-selling in the shares of 10 German financial institutions — including Deutsche Bank, Commerzbank and Allianz — until March 31, 2011.

BaFin also enacted a ban on uncovered credit default swaps on euro-zone government bonds, meaning investors will not be allowed to buy default protection against debt unless they actually own the underlying bonds.

(2) Germany bans Naked Short-Selling

http://www.businessweek.com/news/2010-05-18/germany-to-ban-naked-short-selling-at-midnight-update2-.html

Bloomberg

Germany to Ban Naked Short-Selling at Midnight (Update2)

May 18, 2010, 3:53 PM EDT

By Alan Crawford

May 18 (Bloomberg) -- Germany will temporarily ban naked short selling and naked credit-default swaps of euro-area government bonds at midnight after politicians blamed the practice for exacerbating the European debt crisis.

The ban will also apply to naked short selling in shares of 10 banks and insurers that will last until March 31, 2011, German financial regulator BaFin said today in an e-mailed statement. The step was needed because of “exceptional volatility” in euro-area bonds, the regulator said.

The move came as Chancellor Angela Merkel’s coalition seeks to build momentum on financial-market regulation with lower- house lawmakers due to begin debating a bill tomorrow authorizing Germany’s contribution to a $1 trillion bailout plan to backstop the euro. U.S. stocks fell and the euro dropped to $1.2231, the lowest level since April 18, 2006, after the announcement.

“You cannot imagine what broke lose here after BaFin’s announcement,” Johan Kindermann, a capital markets lawyer at Simmons & Simmons in Frankfurt, said in an interview. “This will lead to an uproar in the markets tomorrow. Short-sellers will now, even tonight, try to close their positions at markets where they can still do so -- if they find any possibilities left at all now.”

Merkel, Sarkozy

Merkel and French President Nicolas Sarkozy have called for curbs on speculating with sovereign credit-default swaps. European Union Financial Services Commissioner Michel Barnier this week called for stricter disclosure requirements on the transactions.

Allianz SE, Deutsche Bank AG, Commerzbank AG, Deutsche Boerse AG, Deutsche Postbank AG, Muenchener Rueckversicherungs AG, Hannover Rueckversicherungs AG, Generali Deutschland Holding AG, MLP AG and Aareal Bank AG are covered by the short-selling ban.

“Massive” short-selling was leading to excessive price movements which “could endanger the stability of the entire financial system,” BaFin said in the statement.

The European Union last month proposed that the Financial Stability Board, the group set up by the Group of 20 nations to monitor global financial trends, should “closely examine the role” of CDS on sovereign bond spreads. Merkel said earlier today that she will press the Group of 20 to bring in a financial transactions tax.

Merkel’s ‘Battle’

“In some ways, it’s a battle of the politicians against the markets” and “I’m determined to win,” Merkel said May 6. “The speculators are our adversaries.”

Germany, along with the U.S. and other EU nations, banned short selling of banks and insurance company shares at the height of the global financial crisis in 2008. The country still has rules requiring disclosure of net short positions of 0.2 percent or more of outstanding shares of 10 separate companies.

The disclosure of the rules drew criticism from lawyers who said that they should have been announced well ahead of time.

“The way it’s been announced is very irresponsible, and it’s sent many market participants into panic mode,” said Darren Fox, a regulator lawyer who advises hedge funds at Simmons & Simmons in London. “We thought regulators had learned their lessons from September 2008. Where is the market emergency that necessitates the introduction of an overnight ban?”

Short-selling is when hedge funds and other investors borrow shares they don’t own and sell them in the hope their price will go down. If it does, they buy back the shares at the lower price, return them to their owner and pocket the difference.

Credit-default swaps are derivatives that pay the buyer face value if a borrower -- a country or a company -- defaults. In exchange, the swap seller gets the underlying securities or the cash equivalent. Traders in naked credit-default swaps buy insurance on bonds they don’t own.

A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.

--With assistance from Karin Matussek, Brian Parkin, Tony Czuczka, Patrick Donahue and Rainer Buergin in Berlin. Editors: Leon Mangasarian, Anthony Aarons

To contact the reporter on this story: Alan Crawford at acrawford6@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net.

(3) What is naked short selling?

By Annalyn Censky, staff reporter

May 19, 2010: 2:09 PM ET

http://money.cnn.com/2010/05/19/news/economy/naked_short_selling_wtf/

NEW YORK (CNNMoney.com) -- "Naked short selling" is the buzz on Wall Street, since a German ban on it sent the stock market tumbling Tuesday. But no, it's not something kinky.

The term "short sale" refers to a type of bet investors can make in the financial markets when they believe a stock or bond will fall. It becomes "naked" when the seller makes the bet without having the goods to back it up.

"Essentially, you're selling something you don't own," explains David Musto, a professor of finance at the University of Pennsylvania's Wharton School. It sounds impossible, he said, but here's how it works:

When a traditional short seller thinks, say, a bond is in trouble he will set out to borrow the bond, sell it to a buyer at its current market value, and then buy it back after its price falls. He can then pocket the difference and return the security to the bond's original holder, who he borrowed it from in the first place.

But in a "naked" short sale, the short seller makes the deal without ever having access to the securities to begin with. Perhaps he doesn't know anyone he can borrow it from, Musto said. Or he originally had access to a lender, but then some event in the marketplace altered his ability to borrow and deliver the goods.

Until the short-seller has bonds to deliver, the buyer doesn't have to pay. But by showing that a sale has taken place even though the goods haven't actually been transferred, a naked short-sale artificially drives a stock's price down to a level that's not reflective of true supply and demand, said Sharyn O'Halloran, professor of political economy at Columbia University.

Germany banned these so-called naked shorts on government debt and large financial firms late Tuesday, as a way to stabilize what has been a very rocky bond market for Europe, as countries in the region try to finance their debt.

The ruling prohibits investors there from short-selling without proof that they access to the underlying bonds to back it up. By doing so, essentially the ban limits short sales to investors who have access to large brokers or big reserves, O'Halloran said.

The whole purpose is to make their financial markets more transparent and for prices to better reflect true supply and demand, she said.

Throughout history, regulators have cracked down on short selling after a period of economic declines. In the U.S., at the the height of the financial crisis in September 2008, the Securities and Exchange Commission temporarily banned investors from short-selling 799 financial companies.

Yet in spite of its stigma, short selling serves a purpose, Musto said.

"It's a standard part of how markets operate. It's how they bring negative information to bear in the markets," Musto said. "When someone starts trying to restrict it, it seems like an act of desperation."

(4) Naked Shorting
http://www.investopedia.com/terms/n/nakedshorting.asp

What Does Naked Shorting Mean?

The illegal practice of short selling shares that have not been affirmatively determined to exist. Ordinarily, traders must borrow a stock, or determine that it can be borrowed, before they sell it short. But due to various loopholes in the rules and discrepancies between paper and electronic trading systems, naked shorting continues to happen.

While no exact system of measurement exists, most point to the level of trades that fail to deliver from the seller to the buyer within the mandatory three-day stock settlement period as evidence of naked shorting. Naked shorts may represent a major portion of these failed trades.

Investopedia explains Naked Shorting

Naked shorting is illegal because it allows manipulators a chance to force stock prices down without regard for normal stock supply/demand patterns.

In 2007, the Securities and Exchange Commission (SEC) amended Regulation SHO to further limit possibilities for naked shorting by removing loopholes that existed for some broker/dealers. Regulation SHO requires lists to be published that track stocks with unusually high trends in "fail to deliver" shares. Some analysts point to the fact that naked shorting, albeit inadvertently, may help markets stay in balance by allowing the negative sentiment to be reflected in certain stocks' prices. ==

http://en.wikipedia.org/wiki/Naked_short_selling

Naked short selling, or naked shorting, is the practice of short-selling a financial instrument without first borrowing the security or ensuring that the security can be borrowed, as is conventionally done in a short sale. When the seller does not obtain the shares within the required time frame, the result is known as a "fail to deliver". ...

Short selling is a form of speculation that allows a trader to take a "negative position" in a company. Conventionally, the trader will "borrow" securities from a current shareholder, typically a bank or prime broker, agreeing to return them on demand. The seller delivers these shares to a buyer, who takes full ownership and likely does not know that he is participating in a short sale. When the seller wants to "unwind" the position, he buys back equivalent shares in the market and returns them to the lender.

This short/borrow system provides the trader with shares to sell at current prices, in the hope that he will profit by repurchasing them later when the price has lowered. Because the seller/borrower is generally required to make a deposit for the full share price with the lender, it also provides the lender with interest on a position that he was not actively trading.

Naked shorts in the United States

Naked short selling is a case of short selling without first arranging a borrow. If the stock is in short supply, finding shares to borrow can be difficult. The seller may also decide not to borrow the shares, in some cases because lenders are not available, or because of the costs of lending. When shares are not borrowed within the clearing time period and the short-seller does not tender shares to the buyer, the trade is considered to have "failed to deliver." ...

Before 2008, regulators had generally downplayed the extent of naked shorting in the US. ...

In 2008, SEC chairman Christopher Cox said that the SEC "has zero tolerance for abusive naked short-selling" while implementing new regulations to prohibit the practice, culminating in the September 2008 action following the failures of Bear Sterns and Lehman Brothers amidst speculation that naked short selling had played a contributory role. Cox said that "the rule would be designed to ensure transparency in short-selling in general, beyond the practice of naked short-selling." ...

This page was last modified on 20 April 2010 at 21:46.

(5) Reactions to the German ban

Factbox: Banker, analyst reaction to German short selling ban

BERLIN

Wed May 19, 2010

http://www.reuters.com/article/idUSTRE64I48X20100519

(Reuters) - Germany declared war on speculators, stunning investors with a ban on naked short selling of certain financial instruments and wrongfooting its European partners who said they were not consulted.

GERMANY

France said it would not follow suit and the European Commission pleaded for a coordinated approach. Chancellor Angela Merkel put the euro under more pressure by declaring it was in danger.

Following are a selection of views from industry figures and analysts:

COMMERZBANK CHIEF EXECUTIVE MARTIN BLESSING

Said there was a clear need to regulate short selling and credit default swaps. "Besides the ban on naked short selling, I am thinking particularly of credit default swaps," he said.

Such financial instruments can serve as a warning light.

"On the other hand, they also unnecessarily aggravated the situation, and even increased the risk of a default."

ANTHONY BELCHAMBERS, CHIEF EXECUTIVE OF FUTURES AND OPTIONS ASSOCIATION

"This is going to result in hopeless confusion in the financial services sector. It makes the whole role of market functionality and compliance difficult to fulfill."

SIMON TILFORD, CHIEF ECONOMIST, Center FOR EUROPEAN REFORM,

"It again suggests that the Germans are no closer to understanding that the markets are not the problem here. The markets are right to be uncertain about the sustainability of the euro zone in its current form.

"What is specific to Germany is a readiness to make unilateral announcements on things that would only be doable if they were done collectively.

"It's pretty populist stuff. It's very difficult to imagine the French doing something like this, making this sort of unilateral decision."

STEPHEN JEN OF BLUEGOLD HEDGE FUND

"Rather strangely, Eurocrats have a 'barbarians-at-the-gate' view of what is going on, that the EMU citadel is under siege and all resources are needed to repel the antagonists/atheists whose cruelness is only matched by their ignorance.

"I think this view is close to 100 percent off the mark. If anything ... the biggest sellers of European bonds are European pension funds, not U.S. hedge funds."

JEREMY STRETCH, CURRENCY STRATEGIST RABOBANK

"Politicians have failed to appreciate that careless talk costs the performance of the single currency."

BOB POZEN, CHAIRMAN OF MFS INVESTMENT MANAGEMENT

"These are understandable reactions by the government but they are unfortunate and ineffective ... It's a very blunt instrument that doesn't make any sense."

MARK CHANDLER, GLOBAL HEAD OF FX STRATEGY, BROWN BROTHERS HARRIMAN

"Market participants concluded that the move was ill-thought out, uncoordinated, and likely ineffective.

"This would seem to be yet another case of a European government taking the wrong fork in the road."

STUART BENNETT, CURRENCY STRATEGIST AT CREDIT AGRICOLE

"The German announcement came out of the blue, without warning, and there is major uncertainty about what this means, whether others will follow and how they will maintain this.

"The backdrop is a very neurotic market which is inclined to give any euro-related news a negative spin."

(6) SEC targets naked shorting in Fannie, Freddie amid  howls of 'market interference'

SEC targets illegal short-selling in Fannie, Freddie and 17 other financial stocks, but risks howls of 'market interference'

July 15, 2008 | 8:22 pm

http://latimesblogs.latimes.com/money_co/2008/07/in-its-battle-a.html

In its battle against abusive short sellers, the Securities and Exchange Commission may risk burning down the market in order to save it.

SEC Chairman Christopher Cox today surprised Wall Street with a plan to curb short selling in major financial company shares. In his initial comments he mentioned Fannie Mae and Freddie Mac as two stocks that would get protection under the plan, but a list the SEC released late in the day also included 17 other big financial firms, including Bank of America Corp., Citigroup Inc., Lehman Bros. and Credit Suisse Group.

Short sellers, of course, are traders who bet on falling stock prices. In a short sale a trader borrows stock (usually from an investment firm's inventory) and sells it, expecting the market price to decline thereafter. If the bet is correct, the trader can buy new shares later at a lower price, repay the borrowed stock, and pocket the difference between the sale price and the repurchase price.

That's all legal -- unless short sellers are ordering stock sales without having arranged to borrow actual shares. Shorting what you don't have is "naked" shorting, which can be illegal, says John Coffee, a securities-law professor at Columbia Law School.

But the rules against abusive naked shorting haven't been enforced much, Coffee adds.

So now comes the SEC to crack down, amid what has been a severe hammering of financial stocks -- to the point where investors are beginning to question the firms' survival.

Beginning on Monday, the agency will require that "anyone effecting a short sale in these securities arrange beforehand to borrow the securities and deliver them at settlement." The emergency rule will be in effect through July 29, but could be extended until Aug. 21, the SEC said. And Cox said the agency eventually expects to cover the entire stock market with the new rule.

For the 19 stocks on the list, the change means that brokers no longer will be able to take a short seller's word that he actually has borrowed the shares he wants sold. ("Sure, I have 'em for you, I'll deliver 'em later.") And that, in turn, could curb situations where multiple short sellers are expecting to borrow the same shares for sale -- like, say, five different people all putting the same car up for sale, even though only one of them can deliver the vehicle.

The SEC suspects that some short sellers are ganging up on financial stocks, engaging in naked shorting while spreading rumors that the companies are in dire straits. Bear Stearns Cos.' rapid collapse in March has been Exhibit A for many people who are ranting about short-selling abuses.

The first salvo in the SEC's latest offensive came Sunday, when it announced that it would "immediately conduct examinations aimed at the prevention of the intentional spread of false information intended to manipulate securities prices."

It's part of the SEC's job to go after people who spread lies about publicy traded companies. But Wall Street can't help but wonder if this anti-short-seller campaign is about more than just the naked shorts. If the SEC can curb short selling in general -- and trigger a wave of buying to cover outstanding short positions -- imagine what that could do for the stock market's abysmal mood.

But the longer-term effect could be to raise questions about just how free the U.S. market is from government interference. That kind of stuff is supposed to happen in Third World countries, not in America.

Legitimate short sellers bet against companies whose shares they believe are overvalued. That makes the shorts an important element of what academics call "price discovery" in the market. The shorts find out things companies often would rather that shareholders didn't know.

For the long-term health of the market, "You don't want to restrict people's ability to invest on negative information," warns Jill Fisch, a securities-law professor at Fordham University.

(7) EU crackdown on Derivatives, Hedge Funds is seen as aimed at City of London

Europe sets twin sights on the City

Michel Barnier, the European internal markets commissioner, on Monday warned of a crackdown on the derivatives market just hours before officials met to thrash out the terms of new hedge fund and private equity legislation.

By Jonathan Sibun, Assistant City Editor
Published: 6:09PM BST 17 May 2010

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/ditch-the-directive/7733962/Europe-sets-twin-sights-on-the-City.html

The markets commissioner said he would deal "very severely" with credit default swaps in legislation planned for October. "These people don't like to come out in the light of day. We are going to flood them with light," he said, highlighting the need for more transparency.

The warning came as a European Parliament committee last night voted in favour of a version of the Alternative Investment Fund Managers Directive that could lead to stricter regulation of the hedge fund industry.

The vote came ahead of a meeting of European Finance Ministers on Tuesday where they will vote on their own version. The two sides will then work in 'trilogue' to agree final legislation.

Critics believe both versions will harm the City, curtail investment opportunities, and lead to an exodus of hedge funds and private equity firms from the UK.

The MEP committee was expected to approve a proposal to force non-EU hedge funds to agree to transparency standards in exchange for a so-called passport to market to European investors.

Mr Barnier backed that proposal, calling for "equal treatment". However, his calls were given short shrift by market insiders who slammed the passporting system. "How is a US fund going to prove that it meets the requirements?" one source said. "The SEC [US market regulator] is going to say it's not our job to do that."

Finance ministers are expected to vote through rules requiring funds to register separately in each EU country, a proposal which has also come in for heavy criticism.

George Osborne, Britain's new Chancellor, opposes the directive but is expected to back down in the face of overwhelming support from other EU countries.

(8) EU crackdown on Derivatives, Hedge Funds is seen as aimed at City of London

EU backs tougher rules for hedge funds, private equity

European Union finance ministers backed stricter rules for hedge funds and private equity groups on Tuesday.

Reuters
Published: 4:36PM BST 18 May 2010

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/ditch-the-directive/7737229/EU-backs-tougher-rules-for-hedge-funds-private-equity.html

The draft rules will control pay and borrowing at hedge funds as well forcing them to disclose extensive information about how they are investing or short-selling.

The strict regime is part of a wider set of pledges by world leaders to create a more stable financial system.

"We are determined to accelerate the pace of regulation," Wolfgang Schaeuble, Germany's finance minister, said after the meeting.

"Up until now this was not regulated," he said of the hedge fund and private equity industry. "This hole will now be closed."

Britain had fought to water down the law and was hoping to overturn a provision that refuses to grant a single licence for foreign funds to do business across Europe. US Treasury Secretary Timothy Geithner has also objected to this.

London's objections were overruled in rare break with Brussels diplomacy which says no country should accept a law that it does not want to.

British diplomats said they had achieved the "best possible" outcome from the meeting, but concerns remain about the impact tighter regulations will have on London's hedge fund industry.

Britain is home to 80pc of the bloc's hedge funds and believes the new rules - likely to take effect around 2012 - will curb choice for investors by making it harder for managers to find investors across the EU's 27 countries.

Only the Czech Republic backed Britain in opposing the approval of the new rules by the finance ministers, insufficent support in the face of heavyweights France and Germany, who pushed for rigid restrictions.

The vote left Britain's new finance minister, George Osborne, outvoted at his first meeting with his peers. Officials said he did not speak during the deliberations on the issue.

The European Parliament's economic affairs committee approved its version of the draft measure on Monday evening, opening the door to formal negotiations on a final deal with EU states, perhaps by July.

(9) Britain fights EU hedge fund directive

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7725867/George-Osborne-in-11th-hour-fight-against-EU-hedge-fund-directive.html

George Osborne in 11th hour fight against EU hedge fund directive

George Osborne will go to Brussels on Tuesday to fight Britain's corner in the mounting row with the rest of Europe over hedge fund regulation.

By Louise Armitstead
Published: 7:55PM BST 14 May 2010

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7725867/George-Osborne-in-11th-hour-fight-against-EU-hedge-fund-directive.html

Mr Osborne, in his first big challenge as Chancellor of the Exchequer, will have to persuade MEPs to reject parts of the proposed Alternative Investment Management Directive ahead of a crucial vote on Tuesday.

Britain's industry trade bodies have united to lobby MEPs on the European Parliament's Economic and Monetary Affairs Committee (Econ) calling for them to support a "pragmatic and workable solution" on some of the British concerns.

The Alternative Investment Management Association (AIMA), the Investment Management Association (IMA) and the National Association of Pension Funds (NAPF) have written a joint letter to the MEPs asking for leniency on the "third party" proposals in the directive that would place controls on non-EU funds.

In the letter, the powerful groups said: "In practice, it will not provide access for non-EU funds and fund managers, but will instead ban European investors from investing overseas.

"It will reduce choice and drive down returns for pension funds and other investors, as they will no longer be able to select their investments from among the best available products globally. This will undermine Europe's competitiveness. There is a real risk that it would provoke retaliatory action in non-EU jurisdictions, which would damage the European financial services industry and the whole European economy."

For months, the controversial directive has been in the hands of the Economic and Financial Affairs Council (Ecofin) and Econ but the dual-track process is set to end next week when both groups vote on their final recommendations.

One source close to the talks said: "It is crucial for the UK to gets its views across ahead of the votes because that's when the pirameters of the legislation will be defined."

The directive has sparked anger among managers, particularly in London where 80pc of the industry is based. There is a feeling that European politicians are happy for hedge fund and private equity managers to take the regulatory consequences of the wider financial crisis.

Insiders said that David Livington, the Tory MP who was appointed Europe Minister on Thursday night, could also be sent out to Brussels to make up ground that Britain has lost because of the election.

Hedge fund managers and private equity bosses last night called for Sir James Sassoon, the newly appointed Treasury Minister, to be part of the negotiations. Sir James is considered to have a stronger handle on the complexities of the directive than many other new MPs.

However his appointment to the House of Lords, could take a longer to become official.

(10) Sir James Sassoon to be Lord of the City of London

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7723823/Sir-James-Sassoon-set-to-be-Lord-of-the-City.html

Sir James Sassoon set to be Lord of the City

Sir James Sassoon, formerly one of Labour's close economic advisers, is expected to be appointed to the House of Lords as the coalition Government's key spokesman on business.

By Louise Armitstead, Chief Business Correspondent
Published: 12:22PM BST 14 May 2010

Plans are being finalised to appoint Sir James as a Minister with a high-profile role in driving forward the radical reconstruction of the financial services industry and the City, according to insiders.

Under the proposals, which are expected to be confirmed shortly, Sir James will work closely with George Osborne and the Treasury team as well as Vince Cable and the Department of Business. Sources close to the talks said another peer is likely to be appointed to cover business and finance too.

The highly respected former UBS banker has had a vital role in forming Tory policies in the run up to the general election, particularly over City reform. Sir James was the author of the Conservatives' White Paper on Financial reform which first articulated the plans to break up the Financial Services Authority and boost the powers of the Bank of England.

Sir James, who specialised in privatisations during his time as a banker, was appointed to the Treasury in 2002 as one of the first City experts to join full time. He quit as Special Representative for Promotion of the City in the summer of 2008 just ahead of the collapse of the banking system and was snapped up by the Tories a few weels later.

The Tories are expected to appoint a series of business leaders to the House of Lords. They could include Simon Wolfson, boss of Next; Sir James Dyson, the vacuum cleaner entrepreneur; Sir Christopher Gent, former boss of Vodafone; and Sir Peter Middleton formerly of Barclays.