The German Government has, on 2 June 2010, submitted a draft Bill which would introduce statutory provisions for the regulation of short selling. Although the draft Bill’s disclosure provisions for net short selling positions are based on CESR recommendations of 2 March 2010 and therefore represent an important step in creating a consistent European short selling disclosure regime, the bans on naked short sales and naked CDS included in the draft Bill go beyond the consensus that currently exists at the European level.
The draft Bill, which provides for amendments to the German Securities Trading Act (WpHG), is very similar in substance to the General Decrees of the German Federal Financial Supervision Authority (Bundesanstalt für Finanzdienstleistungsaufsicht - BaFin) which came into force on 25 March 2010 and 19 May 2010. However, the draft rules go beyond BaFin's currently applicable rules on a number of key points, including extending the ban on naked short selling beyond the shares of selected companies from the financial sector to cover positions in shares of (i) all domestic companies that are admitted to trading on the regulated market in Germany and (ii) all foreign companies that are exclusively admitted to trading on the regulated market in Germany.
The draft Bill also extends the general prohibition on naked short sales in debt securities and naked credit default swaps (CDS) which originally covered only debt securities issued by, or CDS referring to, eurozone Member States, to now cover debt securities issued by, or CDS referring to, "central governments, regional governments, and local authorities" of eurozone Member States. The draft Bill's prohibitions on naked short sales in relevant shares and debt securities apply irrespective of whether the transactions were concluded in Germany or abroad, on a regulated market, a multilateral trading facility (MTF) or over-the-counter (OTC) and therefore impact UK and other foreign investors.
The provisions provided for in the draft Bill are subject to change during the legislative procedure. It is anticipated that a final version of the Bill will come into force within the next few months.
Click here for a more detailed briefing by Gleiss Lutz which outlines:
- the disclosure provisions based on BaFin's General Decree of 4 March 2010;
- the method of calculating the so-called net short selling positions;
- BaFin's General Decrees of 18 May 2010 (prohibition on naked short sales and naked CDS); and
- the draft Bill submitted by the German government on 2 June 2010.