COVID-19: Temporary bans on short selling in the EU come to an end

Those national regulators in the EU which had put in place temporary restrictions on any short selling of securities admitted to trading on regulated markets in their jurisdictions have all confirmed that the prohibitions will not be extended. However, firms should be aware that ESMA’s temporary lower net short reporting threshold will remain in force until 16 June.

National regulators – end of temporary bans on short selling

The regulators in France, Belgium, Spain, Austria and Greece have confirmed that the bans on short selling will not be extended and will expire at 11.59 pm on 18 May. The Italian regulator has also confirmed it will end the prohibition one month earlier than its original 18 June deadline at 11.59pm 18 May (in line with the other jurisdictions).

The below summary table sets out the details of each jurisdiction’s prohibition.

Jurisdiction Latest national regulator public statement Date prohibition imposed Prohibition imposed until
France AMF 18 March 18 May
Belgium FSMA 17 March 18 May
Spain CNMV 17 March 18 May
Austria FMA 18 March 18 May
Greece HCMC 17 March 18 May
Italy CONSOB 18 March 18 May

ESMA – Lower net short reporting threshold still in place

While local regulators now plan to lift the bans on short selling, ESMA has confirmed that its decision to lower the threshold at which persons who hold net short positions in companies whose shares are admitted to trading on an EU regulated market must report to national regulators to 0.1% of the issued share capital (down from 0.2%) will remain in place until 16 June.

More information about the measures put in place can be found at our previous blogpost available here.

Clive Cunningham
Clive Cunningham
Partner, London
+44 20 7466 2278
Nick May
Nick May
Partner, London
+44 20 7466 2617
Mark Staley
Mark Staley
Senior Associate, London
+44 20 7466 7621
Emma Reid
Emma Reid
Associate, London
+44 20 7466 2633

COVID-19: Short selling restrictions and other reporting developments in the EU

[This post was last updated on 16 April 2020 to reflect the extensions to the temporary bans on short selling by EU national regulators]

SHORT SELLING REGULATION

During this unprecedented period of disruption, the European Securities and Markets Authority (ESMA) and other national regulators have taken various extraordinary steps to address the risks faced by financial markets in the EU.

In the past week, ESMA has issued a decision amending the notification threshold for net short positions under the EU Short Selling Regulation (SSR), with some local regulators also imposing temporary prohibitions on short selling transactions. While there has not been any change in the way that the underlying legislation operates, the practical impact of these steps will restrict activity in some markets. Firms involved in short selling need to adjust for the increased transparency obligations.

 1. ESMA – new short thresholds

On 16 March, ESMA published its decision to lower the threshold at which persons who hold net short positions in companies whose shares are admitted to trading on an EU regulated market must report to national regulators to 0.1% of the issued share capital (down from 0.2%).

This lower threshold applies automatically across all EU countries. It will be in place for three months, although ESMA may extend this. Certain exemptions continue to apply, including:

  • net short positions arising from market making and stabilisation activities; and
  • net short positions held in shares admitted to trading on an EU regulated market where the principal venue for the trading of the shares is located in a third (ie non-EU) country.

 2. National regulators –  temporary bans on short selling

In addition to the new EU-wide lowered reporting threshold, national regulators in certain EU jurisdictions have implemented temporary restrictions on any short selling of securities admitted to trading on regulated markets in their jurisdictions (both new and increasing net short positions). A summary table showing the relevant jurisdictions and duration of each prohibition is below:

Jurisdiction Latest national regulator public statement Date prohibition imposed Prohibition imposed until
France AMF 18 March 18 May
Belgium FSMA 17 March 18 May
Spain CMNV 17 March 18 May
Austria FMA 18 March 18 May
Greece HCMC 17 March 18 May
Italy CONSOB 18 March 18 June

Generally, those short selling transactions undertaken by market makers are exempt, and special provisions apply to index-related instruments. However, as these prohibitions are applied on a national (not EU-wide basis) firms will need to confirm the scope and application of the bans in each of the relevant jurisdictions (including any subsequent clarificatory guidance which may be published).

 3. Position in the UK

The FCA has applied ESMA’s amendment to the reporting threshold for net short selling positions (i.e. lowered from 0.2% to 0.1%). However, in a statement made by the FCA on 17 March 2020, firms were told to continue to report data in the UK using the previous threshold until further notice, while the FCA made the necessary technological changes in how it receives the data. Since then, the FCA has confirmed that the required changes have been made and that it will be ready to receive notifications at the lower threshold from 6 April 2020. Firms are not required to amend and resubmit notifications submitted to the FCA between 16 March 2020 and 3 April 2020. Firms should make best efforts to report at the lower threshold from 6 April 2020. Firms should contact the FCA if they are unable to amend their systems by this date.

The FCA has not as yet implemented any specific restrictions on short selling in shares admitted to trading in the UK[1]. In a number of recent statements, the FCA noted that it has never initiated an outright ban on short selling UK shares under SSR, and would set a high bar on imposing any such ban, but could not rule out that this might become appropriate in certain circumstances.

While the FCA’s statements do not suggest that a ban on short selling on shares admitted to UK regulated markets is imminent, firms should continue to monitor regulatory statements on this topic, as changes may be imposed on short notice.

 4. Non-EU markets

Firms should note that non-EU markets might have their own short selling reporting requirements/restrictions and monitor these accordingly.

DELAYS TO SECURITIES FINANCING TRANSACTIONS REGULATION (SFTR) REPORTING REQUIREMENTS

ESMA postpones implementation of reporting under SFTR

On 18 March, ESMA postponed the Securities Financing Transactions (SFT) reporting obligation start date from 13 April 2020, in light of COVID-19 disruption on wider implementation projects.

Trade repositories are also not required to be registered by 13 April 2020. All relevant parties (including trade repositories, entities responsible for reporting and investment firms) should be prepared for compliance by 13 July 2020, when the next phase of the reporting regime begins.

[1]       With the exception of imposing a one day ban on certain Spanish and Italian securities following a request from CNMV and CONSOB on 13 March 2020.

 

Clive Cunningham
Clive Cunningham
Partner, London
+44 20 7466 2278
Nick May
Nick May
Partner, London
+44 20 7466 2617
Mark Staley
Mark Staley
Senior Associate, London
+44 20 7466 7621
Emma Reid
Emma Reid
Associate, London
+44 20 7466 2633

Revamped SFC Code on Unit Trusts and Mutual Funds targeted for implementation on 1 January 2019 with transitional period

On 6 December 2018, the Securities and Futures Commission (SFC) published the conclusions to its consultation on proposed amendments to the Code on Unit Trusts and Mutual Funds (UT Code). The proposed amendments are aimed at updating the regulatory regime for SFC-authorised funds and addressing the risks posed by financial innovation and other developments. Continue reading