EU Short Selling Regulation

 

UnaVista EU Short Selling Reporting solution can help with your validation, submission and storage of positions.

What is the Short Selling Regulation?

Short selling is the practice of selling a financial instrument without actually owning it, with the intention of buying it back later at a lower price. The regulatory authorities are concerned that such practices could be detrimental to the markets and potentially abusive. The Short Selling Regulation attempts to address these issues by introducing a harmonised disclosure regime across the EEA and banning certain ‘naked’ short selling practices.

When does short selling regulation begin?

The EU Short Selling Regulation came into effect on 1 November 2012. As an EU Regulation it will have direct effect in UK Law. The UK’s FSA has proposed that its current short selling rules will be replaced by the EU Short Selling Regulations with effect from 1 November 2012.

How will short selling regulation affect you?

Key points at a glance

  • Net short positions of 0.5% and above in any share admitted to trading on a trading venue in the EU needs to be publically disclosed (on FSA web-site).

  • Net short positions of 0.2% and above in eligible shares need to be disclosed to the ‘relevant competent authority’

  • Calculation of net short positions must also include indirect holdings via related financial instruments including derivatives (including index derivatives), baskets, depository receipts and ETFs.

  • Sovereign debt – short positions of 0.1% or 0.5% (depending on the issuer) must be reported to the relevant competent authority

  • Temporary suspension powers – if the price of a financial instrument on a trading venue falls by a specified amount from previous day’s close, the competent authority must consider whether to prohibit or limit short selling on that instrument to prevent a disorderly market.

  • FSA would make this notification through a Regulatory Information Service

For more information on national notifying processes and forms, please visit;

Restrictions on Short Selling

The regulations prohibit the short selling of EU shares and sovereign debt unless the position has been covered by borrowing the relevant stock or an agreement exists to borrow the stock.

Market Maker Exemptions

Market makers (and authorised primary dealers) have some exemptions from both the short position disclosure requirements and the restrictions on uncovered short sales in shares and sovereign debt (in relation to their market making activities).

Penalties

The EU regulation will require the FSA (and other competent authorities) to impose penalties on firms for infringements on this Regulation.

Related regulations

If you are affected by the this regulation you may also be affected by these:

How UnaVista can help you with short selling regulation?

UnaVista's Shareholder Disclosure solution allows you to address multiple global disclosure regulations through one interface. You can read about the full solution on this page - UnaVista Shareholder Disclosure solution

With intuitive graphic interface and flexible workflow capabilities, UnaVista Shareholder Disclosure solution automates the process of monitoring and reporting short selling positions. The solution currently provides country specific reporting formats to the following EU jurisdictions: Austria, Belgium, Finland, France, Germany, Hungary, Ireland, Italy, Luxembourg, Netherlands, Spain, Sweden and the United Kingdom. Additional EU and global jurisdictions can be easily configured to support specific client needs. The solution helps UnaVista clients to:

  • Reduce operational risk through automation – Complete calculations of your firm’s long position, short position and net short position for each financial instrument ensuring it is consistent with the requirements of the Regulation.
  • Calculate directly and indirectly held positions (e.g. by way of any index, basket of securities or interest in an ETF or similar entity).
  • Get a graphical overview of your positions – UnaVista has graphical dashboards and reports to ensure your compliance personnel are able to make the required disclosures to the relevant competent authority by 3:30 p.m. local time on the following trading day.
  • Understand your risk better - UnaVista calculates your firm’s net short position in each relevant instrument at mid-night of each trading day.
  • Access large range of reference data – calculate your position based upon current shares in issues, using the LSEG’s data sources including FTSE and RNS
  • Keep your data segregated – UnaVista allows you to put in place the required segregation if you have an investment management arm or a discretionary investment manager. So you can be sure that the calculations for your long position, short position and net short position for each financial instrument are conducted at the level of each legal entity (fund level) and also at each portfolio level.
  • Become an expert - UnaVista hold regular training sessions on a range of regulations for trading desk, Middle Office and Back Office personnel.
  • Store data for 5 years – ensure that your firm’s record-keeping policies incorporate the 5-year requirement to retain short selling trade documentation.

Where you can find further information

The Commission delegate Regulation can be accessed at:

http://ec.europa.eu/internal_market/securities/docs/short_selling/20120705-regulation_en.pdf

FSA published a Consultation Paper on 30 August 2012: http://www.fsa.gov.uk/library/policy/cp/2012/12-21.shtml

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