EBF Response to ESMA consultation on possible Delegated Acts (regulation on short selling and certain aspects of CDS)

09 March 2012

The European Banking Federation provided a response on ESMA's advice for delegated legislation in the area of short selling and certain aspects of credit default swaps (CDS).

The EBF agrees with the characterisation of the situations when a person is considered to own a financial instrument for the purpose of the definition of a short sale. EBF supports that legal and beneficial ownership are defined according to the respective civil law or securities law applicable. EBF thinks that the proposed arrangements for calculating long and short positions are broadly fine. Whilst EBG agrees with the method of calculation of net short positions, it thinks that netting for debt instruments from issuers outside the EU should be permitted.

With regard to ESMA’s proposals on sovereign CDS transactions for hedging purposes:

• EBF is reassured that ESMA’s intention to avoid setting out exhaustive lists of particular cases where risks could be hedged via sovereign CDS is the right approach.
• Yet another aspect that should deserve attention is ESMA’s proposals that positions in sovereign CDS that have become partially uncovered due to value fluctuations should only be allowed for a limited time. EBF fears that imposing a time limit would lead to increased volatility in sovereign CDS markets as a result of certain correlations in those markets.
• Furthermore, EBF is concerned by potential territorial restrictions as regards the scope of the assets/liabilities that can be hedged.
• Finally, EBF welcomes the non-prescriptive, qualitative approach that ESMA proposes with regard to extent of the correlation required between non-sovereign debt asset/liability and sovereign debt referenced in the CDS for the CDS to be eligible as hedging.

Full response

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