The Commission has published a draft Regulation on short selling and credit default swaps (CDSs). This will:

  • require all share orders on trading venues to be marked as "short" if they involve a short sale;
  • require disclosure of significant net short positions in shares to regulators at 0.2% of issued share capital and to the market at 0.5% (and each 0.1% above that);
  • require disclosure to regulators of significant net short positions in EU sovereign bonds;
  • include within the relevant disclosures obligations relating to derivatives that get a net short position in the relevant shares or bonds;
  • give regulators clear powers to temporarily restrict or ban short selling – but subject to co-ordination by ESMA, which will also itself have powers to intervene and adopt temporary measures to ban or restrict short selling with direct effect;
  • give regulators the power to restrict short selling in any particular instrument for a day if its price falls by a significant amount within a day;
  • require investors to have borrowed the relevant investments, have an agreement to borrow them, or have arrangements with a third party to locate them for delivery by the settlement date, before they enter a short sale
  • not ban naked CDSs but will require greater transparency of positions and allow regulators to get information and intervene to restrict temporarily or ban the use of CDSs;
  • require trading venues to have adequate arrangements to buy in shares or sovereign debt if there is a settlement failure; and
  • include exemptions for some activities, like market making, primary market operations and shares whose principal market is outside the EU.

The Commission wants the new Regulation to apply from 1 July 2012.