Now that you’ve seen what ACA Insight has to offer, don’t be without it. Subscribe now!

The weekly news source for investment management legal and compliance professionals

Current subscribers - please log in to the website in the upper right-hand corner

News October 22, 2012 Issue

EU Short Selling Restrictions Are Here

Effective November 1, itís a new ball game in the European markets with respect to short selling.

Thatís when the Short Selling and Certain Aspects of Credit Default Swaps regulation goes into effect. The regulation affects only trading inside the EU, including EU sovereign debt and credit default swaps on EU sovereign debt.

However, the regulation applies globally, to any entity seeking to affect short sales in the EU. In some cases, a prospective short seller must register with a local regulatory authority before engaging in short sale activity.

The European Securities and Markets Authority (ESMA) has published frequently asked questions and responses related to the short selling regulations.

The short selling regulation prohibits "uncovered" short sales, and imposes limits that essentially restrict shorting activity to bona fide hedging activity. Cross border hedging between EU member states is not permitted.

Short positions on EU sovereign debt that represent 0.1 percent or more of issued share capital must be disclosed to regulators, and positions of 0.5 percent or more must be disclosed to the public.

The regulation gives national regulators the power to restrict individual short sales until the end of the next trading day when the issuer experiences a "significant" fall in price during a single day.

National regulators are also empowered to temporarily ban all short sales for periods of up to three months. "ESMA is given a central role in coordinating action in exceptional situations and ensuring that powers are only exercised where necessary," say the FAQs.