European Securities and Markets Authority Takes Steps to Improve Transparency in Light of Disruption to EU Financial Markets Arising from COVID-19 Pandemic

Effective 16 March 2020, all holders of net short positions in shares traded on an EU regulated market (i.e. exchange) must notify the relevant national regulators if the position reaches or exceeds 0.1% of the issued share capital.1 The changes to the disclosure threshold from 0.2% to 0.1% follows the publication by the European Securities and Markets Authority (ESMA) of a Decision issued by it using powers granted to it under the EU Short Selling Regulation (SSR).2 The Decision requires net short position holders to notify the relevant national regulator from the end of the trading day on Monday, 16 March 2020, of any net short position of 0.1% of the issued share capital of a company and of each 0.1% above that threshold.

The requirement applies to natural or legal persons, regardless of where they are located. It is a temporary three-month measure, designed to assist the EU authorities to monitor market developments in light of the impact on the EU financial markets of the COVID-19 outbreak.

It is not necessary to notify existing positions above the new lower threshold which were not previously notifiable. This is because the SSR3, which establishes the power under which the ESMA has reduced the threshold, states: “A measure shall take effect when the notice is published on the ESMA website or at a time specified in the notice that is after its publication and shall only apply in relation to a transaction entered into after the measure takes effect.” (emphasis added). It is therefore advisable to make a notification if a short position changes (even downwards) after the measure comes into effect. We are also aware of some market participants who have chosen to disclose existing positions, as a hedge on small subsequent triggering, creating a reporting obligation.

Exceptions

The lower threshold requirements do not apply to:

  • market making activities;
  • shares admitted to trading on exchange where the principal venue for the trading of the shares is located in a third country; or
  • a net short position in relation to the carrying out of a stabilization under the Market Abuse Regulation.4 

ESMA’s Decision follows the temporary prohibitions on short selling of certain shares by some national regulators across the EU.5 ESMA states that this is a precautionary measure and that it is prepared to use other measures to ensure the protection of the financial stability of the EU markets.

Footnotes

1  ESMA Decision of 16 March 2020 to require natural or legal persons who have net short positions to temporarily lower the notification thresholds of net short positions in relation to the issued shares capital of companies whose shares are admitted to trading on a regulated market above a certain threshold to notify the competent authorities in accordance with point (a) of Article 28(1) of Regulation (EU) No 236/2012 of the European Parliament and of the Council.

2  Regulation (EU) No 236/2012 on short selling and certain aspects of credit default swaps.

3  Article 28(9), SSR.

4  Regulation (EU) No 596/2014 on market abuse.

5  The Italian regulator, the Commissione Nazionale per le Società e la Borsa, temporarily banned on 13 March 2020 the short selling of 85 shares listed on the MTA market of Borsa Italianaon, and the U.K.’s Financial Conduct Authority temporarily banned the short selling of certain financial instruments for the day on 13 March 2020, and again on 17 March 2020.

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