On March 16, the European Securities and Markets Authority (ESMA) issued a decision to temporarily require the holders of net short positions in shares traded on an EU regulated market to notify the relevant EU financial regulator if the position is equal to or greater than 0.1 percent of the issued share capital (the Decision). This applies to all positions entered into after the entry into force of the Decision.
Due to the exceptional circumstances of the COVID-19 pandemic, ESMA notes that lowering the reporting threshold is a necessary, appropriate and proportionate precautionary action to assist with the monitoring of the developments in financial markets. It also notes that it can enforce more rigid measures if required, in order to ensure the orderly functioning of EU markets, financial stability and investor protection.
ESMA acknowledges that COVID-19 represents a real threat to market confidence in the EU and so this measure applies immediately to any natural or legal person, irrespective of their country of residence. By introducing this preliminary step now, ESMA notes that EU financial regulators can get information about short selling sooner and decide if further responses are necessary.
ESMA notes that the reporting requirements do not apply to:
- shares admitted to trading on a regulated market where the principal venue for the trading of the shares is located in a third country;
- market making activities; or
- stabilization activities as defined in the Market Abuse Regulation (MAR).
The Decision is available here. (For more information on the FCA statement on short selling, please see the March 20 edition of Corporate & Financial Weekly Digest.)