E.U. – ESMA Short-Disclosure Impact

On 13 April, ESMA issued study on impact of short-sale disclosures.

  • ESMA study showed the impact of short-selling disclosure on investor behaviour.
  • Analysed net short positions reported under the Short-Selling Regulation (SSR).
  • Published in ESMA’s latest trends, risks, vulnerabilities (TRV) report No. 1, 2018.

SSR Treatment

  • SSR requires public disclosure of net short over 0.5% of company issued shares.
  • Firms must also report to authorities shorts above 0.2%, and each further 0.1%.
  • SSR aims to reduce settlement and other risk on uncovered or naked short-sale.
  • Regulation came into force in 2012 and ESMA, in December 2017, advised on revision.

ESMA 2018 Findings

  • Found 210,341 net short positions were reported, from January 2013 to December 2016.
  • Short positions on over 2,000 European shares, majority being UK and German.
  • ESMA analysis revealed around 1,000 different investors are active in EU shares.
  • Large majority is domiciled in US (40%), UK (30%), and only 15% in rest of EU.
  • Short-selling is highly concentrated, 150 investors account for 80% of positions.
  • Investors avoid crossing public disclosure threshold to keep their strategy secret.
  • Disclosure of large shorts might reinforce herd behaviour in short-sale activities.

E.U. – ESMA Commodity Position Limit

On 9 April, EU ESMA issued opinion agreed position limits per MIFID.

  • Follows ESMA October 2017 opinion on FCA commodity position limits.

2018 Updates

  • ESMA opinions agreed position limit re feed wheat; jet kerosene; and gasoline.
  • Found proposed limits consistent with objectives of MiFID II, and methodology.
  • ESMA will continue to assess notifications received and issue opinions on them.
  • To ensure the position limits are set in accordance with the MiFID II framework.

Commodity Limits

  • MiFID II requires that all commodity derivatives traded on trade venues as well
    as economically equivalent OTC contracts, must be subjected to a position limit.
  • NCAs have to establish position limit with methodology for calculation by ESMA
  • For illiquid contracts, spot and other months’ limits are set by default in RTS 21
    and amount to 2,500 lots, or 2.5mn securities issued for securitized derivatives.
  • Liquid contracts will be given bespoke position limits, set by the relevant NCAs.