Earlier this year, the European Parliament and the Council of the European Union adopted Regulation 236/2012 on short-selling and certain aspects of credit default swaps. The Regulation is designed to increase transparency of short positions held by investors in certain EU securities and sovereign debt, and to address the potential risks arising from short-selling and credit default swaps in a harmonised manner.
Under the Regulation, participants in short-selling will need to notify the relevant regulatory authority (and in some cases, publicly disclose) of the acquisition of short positions of shares, sovereign debt and uncovered positions in sovereign credit default swaps. The European Securities and Markets Authority (ESMA) has published a list identifying the relevant competent authority for each share admitted to today on a European regulated market or multi-lateral trading facility and each sovereign issuer. The Regulation will be fully applicable from 1 November 2012 and is supplemented by a European delegated regulation as well as regulatory and implementing standards.
To promote common supervisory approaches and practices in the application of the short-selling regulatory regime, ESMA has published a Questions and Answers document (the “Q&A Document”).
One key question which has been addressed by the Q&A Document is whether shares of all companies traded on markets in the European Union fall under the net short position notification and disclosure requirements. ESMA has confirmed that this will depend on whether the principal trading venue for the shares is in the European Union. The example provided is of a company domiciled in the USA and whose shares are admitted to trading on a trading venue in Germany but whose principal trading venue is located in the USA. Such shares are exempt from the requirements.
The Q&A Document confirms that a net short position in sovereign debt issued by the European Union or any Member State will need to be reported irrespective of where it is executed or booked. ESMA has clarified that shares received as a consequence of a bonus share issue or share dividend distribution will be treated as a long position for the purpose of calculating a net short position.
The Q&A Document also confirms that the first notification or disclosure relates to all net short positions existing or having arisen on 1 November 2012. Therefore, in a Member State where 1 November 2012 is a trading day, net short positions should be notified no later than 3.30 pm on 2 November 2012. The manner in which a notification can be filed will be specified on the website of each competent authority. Late disclosures will constitute a breach of the Regulation and will be subject to penalties and administrative measures.
For further information, please contact one of the key contacts listed above or your usual contact in our Asset Management and Investment Funds Team.
