On 12 February 2013, the European Securities and Markets Authority (ESMA) published a call for evidence on the evaluation of EU regulation No. 236/2012 on short selling and certain aspects of credit default swaps (Regulation).

The call follows a formal request made by the European Commission (EC) to ESMA in December 2012 for technical advice on the evaluation of the Regulation. So that it is able to prepare its technical advice, ESMA is inviting investors, market participants and any other interested stakeholders to provide responses to the questions outlined in its call for evidence on the operation of the Regulation by 15 March 2013.

Aim of the Short Selling Regulation

The Regulation, which has been in force since 1 November 2012, lays down a common regulatory framework of requirements and powers relating to short selling and sovereign credit default swaps. The Regulation seeks to enhance transparency, reduce certain risks associated with short-selling and uncovered credit default swaps (CDS) and ensure a common regulatory approach across member states.

Six areas of focus

ESMA's call for evidence tests the effectiveness of the Regulation by seeking feedback on six main areas which are outlined below.

Transparency and reporting requirements

ESMA invites feedback on the operation of these requirements, including whether the notification and publication thresholds for net short positions have been set at the correct levels.

Restrictions on short selling of shares and sovereign debt

Questions include whether market participants have noticed improvements in settlement performance and whether volatility risks have been reduced.

Restrictions on entering into uncovered sovereign CDS positions

ESMA invites feedback on the restrictions, including the effect of the prohibition on price and volatility of sovereign debt instruments.

Settlement discipline

ESMA invites comments on the effect of the Regulation's settlement discipline provisions, together with the effect, if any, on the liquidity in shares since the application of the Regulation.


ESMA invites comments on the exemptions from the various requirements in the Regulation, which include exemptions from the notification or disclosure requirements of significant net short positions in shares for transactions performed in the course of market making activities or where shares are admitted to trading in the EU but whose principal trading venue is in a third country.

Intervention powers and emergency measures

Market participants are invited to provide their feedback to a number of questions regarding these temporary restrictions imposed by competent authorities.

What happens next?

Stakeholders are required to provide their responses to the call for evidence on 15 March. ESMA must deliver its technical advice to the EC by 31 May and will contribute to the EC's report to the European Parliament and Council which must be delivered by 30 June 2013.

The call for evidence is a valuable opportunity for interested participants to voice their issues on any practical difficulties that they have encountered when applying the Regulation since 1 November 2012. If there are particular areas of difficulty in the Regulation which are reported to ESMA, this should be picked up in the final report to the European bodies for debate on how to appropriately address these issues going forward. Given that the Regulation is relatively recent, we would expect there to be "teething problems" in the interpretation and applicability of the new rules which the relevant authorities may choose to address with specific guidance or revisions to legislative text, if deemed appropriate. We will wait for the summer to see what, if any, developments will surface following the EC's report.

The call for evidence sets out how to submit your contributions online to ESMA.