• ESMA published a consultation on the review of the short selling regulation (SSR).
• Follows ESMA March 2021 confirmed it will not renew decision that net short positions holders, traded on EU market, must notify NCA if position reaches 0.1%.
• Follows ESMA May 2021 proposed permanently lowering threshold.
• And follows EC July 2021 draft delegated act on notification threshold.

Background

• Consultation issued to undertake a systematic review of the provisions of the Short Selling Regulation.
• During Covid crisis competent authorities adopted emergency measures, consisting of both short- and long-term bans, in face of widespread quickly unfolding emergencies.
• The measures adopted were more numerous and differed in scope compared to most previous emergency measures taken under SSR, ESMA has analyzed impact of these.
• Proposes changes aiming to facilitate operation of SSR in future emergency situations.
• Has also considered possibility of US meme stocks phenomena developing in Europe.

Consultation

• Contains proposals for operational improvements, policy clarification in several areas.
• These include: regarding the calculation of net short positions, the prohibition of uncovered short selling and locate rule under which short selling trades can take place.
• The mechanism for transparency of net short positions and the proposal to publish aggregated net short positions per issuer based on all individual positions and the scope of the exemptions for shares that are more heavily traded in a third country.
• Introduction of a centralized notification and publication system to reduce reporting burden, increase cost efficiency, foster ESMA monitoring/coordination in case of threat.
• Paper also contains empirical analysis of impact of short selling bans adopted after the Covid outbreak, with particular reference to the bans' effect on liquidity and volatility.
• Concludes that current intervention powers remain a useful tool in such situations.

Effectiveness

• The closing date for stakeholder responses to the consultation is 19 November 2021.
• ESMA expects to publish a final report by the end of Q1 2022.