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HomeThe reporting threshold for net short positions lowered due to COVID-19’s impact on financial markets

The reporting threshold for net short positions lowered due to COVID-19’s impact on financial markets

18. March 2020

ESMA has in the past few days issued a decision on lowering the reporting threshold from 0.2% to 0.1% for net short position holders in shares traded on an EU regulated market and an opinion which allows an emergency short selling ban on shares traded on the Italian MTA regulated market. The decision and opinion are applicable for the next three months and have been made to ensure the orderly functioning of EU markets.

The European Securities and Markets Authority (ESMA) considers that the current circumstances linked to COVID-19 constitute a serious threat to market confidence in the EU, and that it is essential for authorities to monitor developments in markets.

On 16 March 2020, ESMA issued a decision that lowered the notification threshold from 0.2% to 0.1% for net short position holders. The decision is available here.

The decision entered into force immediately upon its publication and applies for a period of three months to any natural or legal person, irrespective of their country of residence. The lowering of the reporting threshold is a precautionary action, which is linked to the exceptional circumstances of COVID-19 to allow for authorities to monitor developments in markets.

On 17 March 2020, ESMA issued an official opinion agreeing to an emergency short selling prohibition, for a period of three months, by the Italian Commissione Nazionale per le Società e la Borsa (CONSOB) on all transactions which might constitute or increase net short positions on all shares traded on the Italian MTA regulated market.

Notification requirements in connection with net short positions

Short positions triggering notifications: The short selling regulation (236/2012/EU) includes certain notification requirements in connection with net short positions in shares admitted to trading on an EU regulated market, e.g. Nasdaq Copenhagen.

When a natural or legal person has a net short position in relation to the issued share capital of a company with shares admitted to trading on an EU regulated market, such person is required to notify the relevant national competent authority whenever a net short position reaches, exceeds, or falls below the threshold of 0.2% of the issued share capital of the company. This threshold has for the next three months been lowered to 0.1%.

The obligation to notify also applies to each 0.1% increment above that, e.g. a short position of 0.12% of a company’s share capital which is increased to 0.21% also has to be notified.

Short positions triggering public announcements: In addition, when a natural or legal person reaches or falls below a net short position of 0.5% of the issued share capital of a company with shares admitted to trading on a regulated market and each 0.1% threshold above that, such person shall make a public announcement of its net short position. No change has been made to this threshold for now.

Deadline for notifications: The deadline for the notification is 3.30 pm CET on the following trading day for reaching the net short position.

National competent authority: Net short position holders in companies admitted for trading on Nasdaq Copenhagen must submit the notifications to the Danish Financial Supervisory Authority. See further guidance here.

Emergency short selling prohibition on the Italian MTA regulated market

ESMA has also agreed to an emergency short selling prohibition, for a period of three months, by the Italian competent authority CONSOB. ESMA considers that the prohibition is justified by the adverse events or developments which constitute a serious threat to market confidence and financial stability in Italy.

It is expected that the proposed measure by CONSOB will enter into force on 18 March 2020 before the opening of the trading session and expire after the closing of the trading session on 18 June 2020. However, it may be lifted earlier by CONSOB depending on market conditions.

The prohibition concerns all transactions which might constitute or increase net short positions on all shares traded on the Italian MTA regulated market and all related instruments for the calculation of the net short position. However, the measure will not apply to market-making activities, trading in index-related instruments or short positions entered into to hedge positions on convertible bond or subscription rights.

It is yet to be seen if similar prohibitions will be proposed and allowed in other European jurisdictions as the effects of the COVID-19 on the European financial markets further materialise.

The official opinion is available here.

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