UK challenges 'illegal' EU power to ban short-selling Short-sellers seek to profit on declining markets by selling borrowed shares or bonds, on the belief their price will fall, then replacing them with securities bought at a lower price. Esma, which began work in 2011, was given the updated "article 28" powers as an attempt in 2012 by the EU to control or ban forms of speculation that were blamed for driving up national borrowing costs and threatening financial stability at the height of the eurozone crisis. Hubert Legal, the head of the legal service at the Council of the EU and most senior Brussels lawyer, argued that the question got to the heart of the debate about how the Union adapted to new challenges, within the existing Lisbon Treaty that entered into force in 2009. This is a case that we cannot afford to get wrong. It is not a case of symbolic importance only but a vital one for the ability of the Union to play its role in economic governance," he said. Ms Stratford dismissed the EU arguments that Esma's mandate was, limited "objective and technical" by arguing that the regulator would take decisions, such as whether short-selling posed the risk of "sovereign default," that impinged on sovereignty over national economic policy. "These would all be sensitive political questions, highly uncertain and subjective," she said. Uniquely, compared to other emergency Esma powers, the EU agency is empowered to act by itself without a prior agreement by EU finance ministers. Mr Legal, supported by Spanish, Italian and French government lawyers, rejected the Government's argument that the new power gave Esma sweeping and discretionary powers to override national regulators and to autonomously take decisions that would fully legally binding for stock markets. He said that the EU markets regulator could only act in "exceptional circumstances" following a majority vote and only if a national authority had failed to act in a situation that threatened financial stability across Europe's borders. There is no valid reason to deprive the Union and member states of a tool that is as crucial to integration as it is to regulation. Effective EU agencies are crucial to the development of a common approach a role almost as important as legislators," he said. Alexandria Carr, a lawyer at the international law firm Mayer Brown, warned that the case had "wider ramifications" for the EU three financial supervisory authorities, covering markets, banking and insurance, which have powers to impose decisions on credit rating authorities, national regulators or firms. "There are suggestions in Brussels that further powers should be conferred on these agencies and the decision of the court could give these proposals a red, or green, light,"she said. Britain is also contesting plans by 11 other EU nations for a financial transactions tax and suing the European Central Bank over policies that it says push clearing of some derivatives away from London and into the euro area.