ESMA Lowers Reporting Threshold For Short Positions In Response to Covid-19 Pandemic
ESMA has issued a statement outlining its decision, effective immediately, to temporarily lower the reporting threshold of net short positions in EU traded shares from 0.2% to 0.1% of the issued share capital of the relevant company.

 

In response to the Covid-19 pandemic, ESMA has issued a statement outlining its decision, effective immediately, to temporarily lower the reporting threshold of net short positions in EU traded shares under the Short Selling Regulation (SSR) from 0.2% to 0.1% of the issued share capital of the relevant company.

What is the impact of ESMA's decision?

ESMA's decision requires all holders of net short positions in shares traded on an EU regulated market (where that EU market is the principal trading venue for the shares) to notify the relevant national competent authority if the position reaches or exceeds 0.1% of the issued share capital of the issuing company.  The measure applies immediately, requiring net short position holders to notify their relevant positions as at the close of today's trading session. 

What is the basis for ESMA's decision?

ESMA considers that a build-up of significant net short positions could amplify selling pressure and downward trends thereby further destabilising markets impacted by the Covid-19 pandemic.  By temporarily lowering the reporting thresholds of net short positions, ESMA is looking to increase the data available to it and national competent authorities and increase their capacity to take action to address potential negative effects on financial stability.  

What short positions are reportable?

All holders, including natural persons and corporates and irrespective of whether they are located in the EU or a third country, are in-scope of the SSR requirement to report net short positions in EU traded shares.  However, the requirement to report does not apply to shares admitted to trading on an EU regulated market where the principal venue for the trading of the shares is located in a third country.

A reportable short position is a position resulting from either:

  1. a short sale of a share issued by a company; or
  2. entering into a transaction which creates or relates to a financial instrument other than an instrument referred to in point (a) where the effect or one of the effects of the transaction is to confer a financial advantage on the natural or legal person entering into that transaction in the event of a decrease in the price or value of the share e.g. created by the use of derivatives, such as options, futures, index-related instruments, contracts for differences and spread bets relating to shares.

A net short position is the position remaining after deducting any long position in relation to the issued share capital from any short position.

To whom should I report?

In-scope net short positions (0.1% of the issued share capital of the issuing company) should be reported to the relevant national competent authority for reporting under the SSR.  The relevant national competent authority will depend on the position taken, however it is likely to be the competent authority of the Member State in which the financial instrument was first admitted to trading on a trading venue. 

 

Contributed by: Nessa Joyce

Key Contacts

Patricia Taylor Partner

Vincent Coyne Partner

James Phelan Partner

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