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02 March 2010

CESR recommends introduction of pan-European short selling disclosure regime


CESR recognises short selling is key for financial markets as it facilitates risk management activities. But it can also be used in an abusive way to drive down financial instrument prices to a distorted level. A pan-European regulatory approach is, therefore, necessary.

In a report submitted today in the form of technical advice to European Institutions, CESR recommends the introduction of a pan-European disclosure regime for net short positions in shares. In the meantime, CESR members with powers to introduce a permanent disclosure regime, as elaborated in the report, will begin the process of implementing this regime. CESR members without the necessary legal powers will aim towards implementing this regime on a best efforts basis, until an EU regime is adopted.
 
CESR recognises that legitimate short selling plays an important role in financial markets. It contributes to efficient price discovery, increases market liquidity, facilitates hedging and other risk management activities and can possibly help mitigate market bubbles. However, it can also be used in an abusive fashion to drive down the price of financial instruments to a distorted level and, in extreme market conditions, can have an adverse impact on financial stability. Following the recent financial turmoil, it was widely recognised that for a short selling disclosure regime to be efficient and to ensure transparency for market participants, a convergent pan-European regulatory approach is necessary.
 
The short selling disclosure regime proposed by CESR is a two-tier model for the disclosure of significant individual net short positions in all shares admitted for trading in an European Economic Area (EEA) regulated market and/or an EEA Multilateral Trading Facility (MTF), when the primary market of those shares is located in the EEA. Under the proposed regime, at the lower threshold of 0.2 per cent, positions should be disclosed to the relevant competent authority. In addition, steps of 0.1 per cent would trigger further disclosure obligations. After the position reaches the higher threshold of 0.5 per cent and any additional steps of 0.1 per cent thereafter, the position should be disclosed to the competent authority as well as to the market as a whole.
 


© CESR - Committee of European Securities Regulators

Documents associated with this article
10_089.pdf

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