On 4 April 2022, ESMA issued its final report on short selling regulation which follows which follows its previous consultation from 24 September 2021.
Summary
- ESMA takes stock of experience gained during the Covid-19 outbreak and relates to emergency measures adopted by the relevant competent authorities (RCAs).
- Also ESMA’s temporary lowering of the notification thresholds for net short positions (NSPs) to promote an EU-wide monitoring of all the short selling activity undertaken.
- ESMA has also considered, in light of episodes of high volatility which took place in US markets and elsewhere in so-called meme stocks, similar phenomena occurring in EU.
- ESMA has therefore re-assessed the SSR provisions regarding uncovered short selling and the report, therefore, focuses on three main areas, based on ESMA's conclusions.
Emergency Measures
- The report includes an empirical analysis of the impacts of the emergency measures adopted during the Covid-19 crisis, and ESMA proposes amendments to the rules.
- These affect how RCAs issue long-term and short-term bans and allow for ESMA to adopt intervention powers, in similar circumstances, to provide more control.
- These amendments aim at ensuring that the relevant procedures are clear, streamlined and sufficiently flexible for RCAs and ESMA to effectively tackle emergency situations.
Current Framework
- A review of the current framework is needed to cover the calculation of NSPs, the list of exempted shares, as well as the so-called locate rule to be met when short selling.
- With respect to the latter, it is proposed to enhance the existing rules about uncovered short sales, introducing record-keeping requirements and harmonization of penalties.
Transparency
- ESMA also proposes an assessment of the current framework for the transparency and the publication of NSPs, bearing in mind the effect of all of the recent market events.
- ESMA proposes introduction of centralized system for publication and disclosure to the public of NSPs and EU-wide obligation for RCAs to periodically publish NSPs per issuer.
- This would include individual positions reaching or exceeding notification thresholds.
Next Steps
- ESMA has submitted the final report to EC and is now ready to provide any technical guidance should the EC decide to proceed with a wider review of the current SSR rules.
