AIMA

EU Short Selling Regulation

On 14 March 2012, Regulation (EU) No.236/2012 on short selling and certain aspects of credit default swaps was published in the Official Journal of the European Union. It entered into effect on 1 November 2012. Among other matters, the Regulation:

· introduces a ban on uncovered sovereign CDS;

· imposes a prohibition on uncovered short sales of shares and sovereign debt, subject to the requirement: (i) for shares - that an arrangement has been entered into with a third party which gives the person a reasonable expectation that settlement can be effected when due; and (ii) for sovereign debt – that an arrangement has been entered into with a third party which has confirmed that sovereign debt can be delivered in time for settlement;

· introduces an EU-wide notification and reporting regime for shares, whereby holders of significant net short positions must notify their positions privately to the relevant competent authority when they exceed or fall below 0.2% of the issued share capital of the issuer company; and must publicly disclose these (on a named basis) when they exceed or fall below 0.5%. In each case, further notification or reporting is required at each 0.1% above the initial threshold;

· introduces an EU-wide notification regime for sovereign debt, whereby holders of significant net short positions must notify their positions privately to the relevant competent authority when they exceed: (i) for sovereign issuers with €0-500bn outstanding debt - 0.1% of the total outstanding amount of issued sovereign debt and each 0.05% above this; and (ii) for sovereign issuers with over €500bn outstanding debt or where there is a liquid futures market – 0.5% of outstanding issued sovereign debt and each 0.25% above this;

· provides national competent authorities and ESMA with additional powers to intervene in the markets in times of stress; and

· excludes sales under repo agreements or futures contracts from the definition of short sales in shares and debt instruments.

The European Commission is mandated to review the appropriateness of and operational issues surrounding certain provisions of the SSR. It has requested that ESMA provide it with technical advice by 31 March 2013. ESMA has under taken a public consultation to which AIMA submitted a response on 15 March 2013.

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Legislative texts

Level 1

Regulation 236/2012 on short selling and certain aspects of CDS (March 2012)

Level 2

European Commission Delegated Regulation (EU) No. 918/2012 – definitions, calculation of net short positions, covered sovereign CDS, notification thresholds, liquidity thresholds, significant falls in value and adverse events (July 2012)

European Commission Delegated Regulation (EU) No. 919/2012 – RTS on fall in value for liquid shares and other instruments (July 2012)

European Commission Delegated Regulation (EU) No. 826/2012 containing Regulatory Technical Standards (June 2012)

European Commission Implementing Regulation (EU) No. 827/2012 containing Implementing Technical Standards (June 2012)

Level 3

ESMA Guidelines on the exemption for market making activities and primary market operations (February 2013)

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Guidance

ESMA 2nd Update of Q&As on the Short Selling Regulation of January 2013 (January 2013)

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Consultations, legislative process and related AIMA documents

Level 1

Level 2

Review

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Other AIMA documents

Guidance Note on the Short Selling Regulation (November 2012)

Update Note - EU Short Selling Regulation(October 2011)

Update Note (July 2011)

Note on European Commission's draft Proposal for a Regulation on Short Selling and certain aspects of Credit Default Swaps (May 2011)

Research Note:The European Sovereign CDS Market (April 2011)

Position Paper on the European Commission’s Proposal for a Regulation on Short Selling and certain aspects of Credit Default Swaps (December 2010)

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AIMA SSR Noticeboard