Traders can be banned from short-selling by an EU regulator if it thinks there's a risk to financial stabilityReuters

Britain has lost its legal challenge to the power to ban short-selling given to European financial regulators.

The European Court of Justice did not uphold the UK's challenge to the European Securities and Markets Authority's (ESMA) emergency powers to force a ban on short-selling in individual EU member states if it deems there is a threat to financial stability across the continent.

Though the UK backs the rules, it is pressing for clarity on how they fit with principles established under EU law. It wanted to be sure that states facing a short-selling ban cannot trump the regulator with a legal challenge and prevent immediate action to stabilise markets in the face of a potential crisis.

"We are disappointed that the European Court of Justice has chosen not to uphold the UK's challenge on this case and, in doing so, has rejected the opinion of its own Advocate General," said a spokesman for the UK Treasury.

He added that the Treasury will "consider the judgment in detail and respond in full at a later date."

In September a senior legal adviser to the ECJ, Advocate General Niilo Jaaskinen, backed what the UK had flagged as a concern in the legitimacy of ESMA's short-selling powers.

Jaaskinen said they "go beyond what could be legitimately adopted as a harmonizing measure necessary for the establishment or functioning of the internal market."

Short-selling is the trading strategy of borrowing a certain amount of stock at one price and selling it on, hoping the value falls, then replacing the stock with the borrower at a lower price. The trader's profit is in the difference between the borrowed price and that at which they replace the stock.

The UK has several other challenges to EU law going through the courts. Two notable cases are its attempts to stop a Financial Transaction Tax and an EU-wide cap on bank bonuses.