Since 1 November 2012 Regulation (EU) No 236/2012 on short selling and certain aspects of credit default swaps (SSR) has been in effect. All previous national regulations relating to short selling within the EU were therefore repealed (as latest as of 1 July 2013).
The European regulation on short selling consists of two pillars:
- Rules prohibiting naked short selling of shares and public debt instruments as well as uncovered sovereign Credit Default Swaps (CDS) (Articles 12 et seq. SSR),
- Transparency rules for net short positions in shares, public debt instruments and where applicable CDS (Articles 5 et seq. SSR)
The ban on naked short selling in shares extends to all “European” shares, that are authorised or listed on regulated markets and multilateral trading facilities (MTFs) (Article 2 (1) SSR). “European” shares are shares where their primary trading venue is within the EU. The European Securities and Markets Authority (ESMA) publishes a list of exempted shares (a list of shares that is excluded from the regulation of short selling).
The ban on naked short selling of public debt instruments extends to all sovereign debt instruments that have been issued by an EU Member State, the European Union or another public issuer (Article 2 (1) d) SSR).
The ban on buying naked Credit Default Swaps (CDS) of public debt instruments extends to all sovereign CDSs, which are issued by an EU Member State, the European Union or other public issuers (Article 15 SSR).
A two level transparency system exists for net short positions in shares. If the appropriate thresholds are either reached or fallen short of, then the net short position in shares must be notified to the competent national authority (Articles 5 and 6 SSR). An initial notification must be made in accordance with Article 5 (1) and (2) SSR, if the net short positions in shares reach 0.2 % of the issued share capital of the company concerned (Level 1). If the net short position in shares reaches 0.5 % of the issued share capital, then it must also be published on the FMA website in accordance with Article 6 (1) and (2) SSR (Level 2).
The rules contained in the SSR also apply outside the EU and for natural or legal persons from third countries. As a result the location where the trade was concluded as well as the nationality of their involved or the place of incorporation all play an equally minimal role.
For net short positions on sovereigns there is only an obligation to notify in the event of reaching or falling below a threshold (Article 7 SSR). There is no disclosure obligation in this instance.
Uncovered sovereign CDS positions must on be notified, in the event that a supervisory authority removed the restrictions for uncovered CDSs as defined in Article 14 (2) SSR (Article 8 SSR).
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