• EC launched consultation on delegated act on the threshold adjustment for notification of significant net short positions in shares under the Short Selling Regulation (SSR).
• Follows ESMA May 2021 proposed permanently lower threshold of 0.1%.

Overview

• SSR creates set of harmonized rules increasing transparency of significant net short position held by investor; to reduce risks in uncovered short sales/credit default swap.
• It also provides national regulators and ESMA with intervention powers in exceptional circumstances (e.g. to temporarily restrict or ban short selling).
• The delegated regulation now under feedback period aims to enhance transparency for competent authorities on significant net short positions in shares.
• Positions must be notified to relevant competent authorities to enable them to monitor, where necessary, investigate short selling that could create systemic risks, be abusive.
• Or create disorderly markets (0.2% of issued share capital, each 0.1 % above that).
• SSR allows ESMA to take emergency measures e.g. lowering threshold temporarily.
• To address issue of developments in financial markets that may make the notification threshold inappropriate, SSR introduced mechanism enabling ESMA to issue opinion to EC on adjusting notification threshold and for EC to adopt delegated acts to amend it.

Change Reasoning

• In February 2020, substantial selling pressure and unusual volatility followed pandemic start leading to significant downward price spirals affecting issuers from all sectors.
• Despite a partial price recovery in equity prices within EEA, pandemic consequences kept affecting real economy, overall outlook for future recovery remained uncertain.
• In March 2020, ESMA made use of its emergency intervention powers, issued a decision to lower notification threshold for net short positions in shares admitted to trading on a regulated market from 0.2 % to 0.1 % for 3 months, renewed it in June, September and December.
• When last temporary measure to lower notification threshold expired on 19 March 2021, ESMA considered conditions to take emergency measures were no longer applicable.
• However, increased visibility obtained by competent bodies on volumes of net short positions convinced ESMA notification threshold should be set at 0,1% permanently.
• In May 2021, it issued opinion to EC, in accordance with art 5(3) of SSR on adjusting permanently the notification threshold to 0.1 % (and each 0.1 % above that).

New Threshold

• Art 1 amends art 5(2) SSR to set threshold for notification to competent authorities of net short positions in shares to 0,1 % of issued share capital of company concerned.
• I.e. adjust threshold for notification from 0.2 % to 0.1 % (and each 0.1 % above).

Other Aspects

• ESMA did not consult on opinion but draft will be published on Better Regulation portal.
• To open 4-week feedback period and then submitted to EGESC (Expert Group of EU Securities Committee) for consultation per principles in Interinstitutional Agreement.

Effectiveness

• The feedback period closes on 12 August 2021; the regulation set to enter into force on the 20th day following that of its publication in the official journal.