The European Parliament has adopted final Regulations on short selling of shares and sovereign debt and various sets of related technical standards. The Regulations applied on 1 November 2012 and have direct effect throughout the EU.
The Regulations introduce: (i) mandatory disclosure of net short positions to the regulator; (ii) restrictions on naked short selling; (iii) a prohibition on uncovered positions on sovereign credit default swaps and (iv) regulator powers to impose temporary restrictions during stressed markets. Firms must disclose to the regulator a net short position in shares or sovereign debt when the position reaches or falls below a relevant notification threshold. Derivative positions are included. The relevant thresholds are 0.2% (when the firm must make a private notification to the regulator) and 0.5% (when the firm must make a disclosure to the regulator which the regulator makes publicly available), in each case measured as a percentage of the issuer’s total issued share capital. Disclosure must also be made when the net short position reaches or falls below 0.1% increments above 0.2% or 0.5%. The time for calculation of the net short position is midnight at the end of the trading day on which the person holds the position. The disclosure must be made no later than 15.30 on the following trading day. The relevant regulator is generally the competent authority of the Member State in which the relevant financial instrument was first admitted to trading on a trading venue.
There is no disclosure obligation in relation to shares of a company admitted to trading on a trading venue in the EU where the principal venue for the trading of the shares is located in a third country. ESMA maintains a list of shares for which the principal trading venue is located in a third country.
Each fund manager must aggregate the net short positions of the funds and portfolios under its management for which it pursues the same investment strategy in relation to a particular issuer, and reported the aggregated position.
The FSA will introduce electronic reporting through an internet portal in due course. In the meantime, it has made the disclosure forms available from a webpage (http://www.fsa.gov.uk/about/what/international/short-selling/notifications-disclosures). The forms will need to be downloaded, completed and returned by email to the FSA.
Timing and recommended actions: The Regulations are currently in force. Firms should monitor all short sales and ensure that disclosure is made in compliance with the Regulations.