22 February 2018

ECON: Evaluation of certain elements of the Short Selling Regulation

Under Article 17 SSR, certain requirements concerning the notification or disclosure of significant NSPs in shares and sovereign debt, and the restrictions on uncovered short sales in shares or sovereign debt or on uncovered sovereign CDS do not apply to transactions performed by market makers. The Commission already announced in the Call for Evidence on the EU regulatory framework for financial services (COM(2016) 855) an assessment of the definition of this exemption for ‘market making activities’.

Article 23(1) SSR grants NCAs the power to temporarily restrict short selling of financial instruments on a trading venue in case of significant declines in price, subject to fixed thresholds. So far, only two NCAs have adopted short-term bans. Hence, ESMA recommends keeping current thresholds but amending the procedure for adopting the bans. Only the NCA with the most relevant market in terms of liquidity for the instrument should be able to adopt the ban, which would then be effective in all MS upon publication on the NCA’s website. Other NCAs should no longer have the power to oppose the decision.

ESMA also addresses the scope of the short-term ban, and proposes changing it from bans on short selling to bans on ‘entering into or increasing NSPs’. The latter includes short selling but also short positions obtained through derivatives and OTC trading. ESMA notes that index trading is not be included in this scope, and that the scope should be restricted to shares and sovereign debt instruments traded on trading venues.

Articles 5 and 7 SSR require that investors notify NCAs of their NSPs of shares and sovereign debt, and Article 9 contains rules for timing for notification and disclosure, including in Article 9(4) a website for public disclosures. In its Call for Evidence, the Commission announced it would assess the possibility of introducing an EU centralised reporting platform. In this context, ESMA proposes, i.a., a reviewed timing for publication of NSPs and the levying of a fee on position holders to have access to and report through a centralised system.

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