This Update No. 1 supplements an Alert dated Sept. 21, 2008. In response to the disclosure measures and short selling restrictions imposed on Sept. 18 and 19 by the U.K. Financial Services Authority and the U.S. Securities and Exchange Commission, regulators around the world have continued to either ban short selling, add restrictions on short selling or add disclosure requirements with respect to short positions in their home jurisdiction. By banning, restricting and disclosing short sales, regulators are seeking to maintain confidence in their own markets and complement the measures taken by U.S. and U.K. regulators. Clients and others who may be affected by the requirements below are encouraged to seek advice from local counsel.
On Sept. 22, 2008, the Australian Securities and Investments Commission (“ASIC”) extended the ban it introduced on covered short selling to managed investment schemes and stapled securities. The expansion will be reviewed in 30 days along with the ban in relation to securities. On Sept. 23, 2008, ASIC issued further clarification to market participants regarding the prohibition on short selling. The current ban on covered short selling does not apply in respect of sales made by market makers for the purposes of hedging their market making activities, to sales made as part of dual listed arbitrage transactions and index arbitrage transactions. Further, the ban does not apply in respect of covered sales by underwriters to hedge the financial exposure in relation to the underwriting of a dividend reinvestment plan or a security purchase plan.
Click here to read the ASIC explanatory statement.
Click here to read the ASIC class order.
Click here to read the ASIC press release.
Effective Sept. 23, 2008, Greece’s stock exchange (“ATHEX”) has flagged short sales from Sept. 24, 2008 to Dec. 31, 2008. The regulator is publishing a daily account of all short sales that take place during the trading day and the number of shares by company that are borrowed to be short sold. Legal entities with short positions in stocks that exceed .1% of the total stocks issued in the company must disclose the position to the regulator or the exchange no later than the following day. Further, if a member of the Athens Exchange that has sold shares in the market fails to deliver them within the three-day settlement cycle, the member will be barred from the Athens Exchange until it fulfils its obligation to deliver the shares.
Click here to read the ATHEX announcement.
Matheson Ormsby Prentice LLP has prepared a Q&A which addresses several important questions about the new rules in Ireland.
Click here to read the Matheson Ormsby Prentice LLP Q&A.
Effective September 23, 2008, the Commissione Nazionale per le Società e le Borse (“Consob”) has banned short selling of shares in Italian banks and insurance companies listed and traded on the Italian regulated markets, subject to a market maker exemption. The sale of such shares must be supported, from the moment of the order up and until the date of the settlement of the transaction, by the availability by the ordering party of the relevant securities. The provisions will cease to have effect 12:00 p.m. on Oct. 31, 2008.
Click here to read the Consob press release.
Effective Sept. 19, 2008, the Commission de Surveillance du Secteur Financier (“CSSF”) has banned naked short sales where the underlying assets are stocks of a publicly quoted bank or insurance undertaking traded on a regulated market. The CSSF also warned against the spreading of false rumors or information in the market.
Click here to read the CSSF press release.
Effective September 22, 2008, the Authority for the Financial Markets (“AFM”) has banned the naked short selling of shares issued by financial companies, subject to a market maker exception. The measures concern (depository receipts of) shares issued by financial companies which are traded on the Euronext Amsterdam stock exchange. All selling orders resulting in postponed settlement/delivery concerning one of the shares involved must be covered 100% by the financial instruments that are the subject of the selling orders. Additionally, any party having accumulated net economic short position exceeding .25% of the capital of one of the financial companies involved must report its position to the AFM immediately, but ultimately on the next working day after their realization. The measures are in effect for a period of three months.
Click here to read the AFM press release.
Effective Sept. 22, 2008, the Executive Board of the Comissão de Mercado de Valores Mobiliários (“CMVM”) has mandated the daily reporting of information on short selling transactions. The obligation currently applies to the members of Euronext Lisbon and members of the PEX Multilateral Trading Facility. Reports must be submitted daily until noon of the following trading day after the execution of the relevant transactions. The first reports are due for submission by noon on Sept. 23, 2008.
Click here to read the CMVM press release.
According to a Sept. 22, 2008, Financial Times article, the Federal Service for Financial Markets has issued a restricting order prohibiting naked short selling until further notice: "Regulated market participants are hereby instructed to temporarily suspend any and all activities involving sale of securities through stock exchanges in the cases when the selling side of the proposed transaction is not in immediate possession of sufficient number of relevant securities and/or has not made prior arrangements (excluding the first leg of a repo transaction) to acquire the sufficient number of relevant securities to enable the settlement of the proposed transaction within the limits of the exchange trading session."
Effective Sept. 22, the Singapore Exchange (“SGXL”) has been and will continue to publish the list of buyingin securities and the volume of shares sought at 11:00 a.m. every day. After completion of buying-in (which occurs from 11:30 a.m. every day), SGX will publish the list of securities bought-in, the volume and dollarvalue at 8:30 a.m. the following business day. Traders who cannot deliver shares they sold will now face a penalty of 5% of the value of the failed trade subject to a minimum of S$1,000 ($710). This is in addition to the current processing fee for buying-in of S$30 per contract. Further, effective Sept. 25, 2008, SGXL has banned short selling in the buying-in market.
Click here to read the SGXL press release.
According to a Sept. 25, 2008 Wall Street Journal article, South Korea’s Financial Services Commission ("FSC") will introduce a cooling-off period for shares that have been heavily short sold and ensure that all short sellers have the ability to settle such transactions, effective Oct. 13. Under the new rules, if short selling of a particular stock on the main exchange accounts for 5% or more of the stock’s total transactions in 20 trading days, short selling for that share will be barred for 10 days. If the proportion of short sales is still above 5% after the cooling-off period, the short-selling ban could be extended. On the Kosdaq market, the 10-day cooling-off period will be applied to stocks in which short selling accounts for more than 3% of total transactions in 20 trading days. The FSC also said it will be tightening disclosure rules to provide more accurate information to investors.