As previously reported in April 2017, the Icelandic Financial Supervisory Authority announced its proposal to implement the EU Short Selling Regulation into Icelandic law.

SA has released the ESMA SSR Rule for Iceland ahead of the effective date, 1 July 2017.

More about the ESMA SSR rule:

The short selling regulation is a regulation of the European Union (EU)No 236/2012 (Opens in new window) of 14 March 2012 on short selling and certain aspects of credit default swaps. The short selling regulation consists of Regulation (EU) No. 236/2012 as well as the Implementing Regulations and Delegated regulations that implement the so-called technical standards. Technical standards may be RTS (e. Regulatory technical standards) or ITS (e. Implementing technical standards) regarding the further implementation of short-selling regulation. The short selling regulation has four technical standards, Implementing Regulation (EU) 827/2012 (Opens in new window) and delegated regulations (EU). 826/2012 (Opens in new window) , (PDF file) (EU) 918/2012 and (PDF file) (EU) 919/2012.

A new framework regarding short selling of financial instruments and transactions in credit default swaps was introduced with the short selling regulation. The regulation requires holders of net short positions in shares or sovereign debt to make notifications once certain thresholds have been breached. It also outlines further restrictions on investors entering into uncovered short positions in shares or sovereign debt. The competent authorities are given powers to suspend or restrict short selling of such transactions under certain circumstances.

Net short positions in shares
A notification must be made to the competent authorities when a net short position exceeds or falls below the limit of 0.2% of the issued share capital of the company that has had its shares admitted to trading on a regulated market or MTF. In addition a notification must be made every time a net short position is increased by 0.1% in excess of the aforementioned 0.2% limit. Notification must be made public if the net short position in shares exceeds 0.5% of the issued share capital of a company and for each 0.1% above that. Notifications must be made privately or in public when a net short position falls below the aforementioned limits.

Restrictions on uncovered short sales

Short selling of shares and sovereign debt instruments
According to the provisions of the short selling regulation an uncovered short selling of shares and sovereign debt instruments is banned. When entering into a short sale, the investor should have the financial instruments available, or be ready to take appropriate measures to ensure that it will be available on the agreed settlement date of the transaction. The requirements can be met in three ways:

• borrow the shares or the sovereign debt instruments, or make alternative provisions resulting in a similar legal effect,
• enter into an agreement to borrow the share or the sovereign debt or have another absolutely enforceable claim under contract or property law to be transferred ownership of a corresponding number of securities of the same class so that settlement can be effected when it is due,
• have an arrangement with a third party under which that third party has confirmed that the share has been located and has taken measures vis-á-vis third parties necessary for the natural or legal person to have a reasonable expectation that settlement can be effected when it is due.

These restrictions do not apply if the transaction serves to hedge a long position in debt instruments of an issuer, the pricing of which has a high correlation with the pricing of the given sovereign debt.

For complete overview of Iceland ESMA SSR Implementation