Background
Due to increased volatility on the financial markets in 2020 triggered by the COVID-19 pandemic, ESMA decided to temporarily lower the reporting threshold of 0.2 % to 0.1 %, effective from 16 March 2020. The temporarily lowered reporting threshold of 0.1 % was effective until 19 March 2021, after which the reporting threshold was set back to 0.2 %.
On 13th May 2021, ESMA made a recommendation to the European Commission (EC) to permanently lower the threshold to notify net short positions on shares to national competent authorities (NCAs) from 0.2% to 0.1%. This recommendation would bring the EU’s initial reporting threshold in line with the current UK threshold, which already stands at 0.1%.
Lowering the threshold for notifications on a permanent basis
On 11th January 2022, Delegated Regulation 2022/27 amending the short selling threshold was published in the European Union’s Official Journal.
Article 5 of Regulation (EU) No 236/2012, paragraph 2 has been replaced by the following:
“2. A relevant notification threshold is a percentage that equals 0.1 % of the issued share capital of the company concerned and each 0.1 % above that.”
Therefore, from 31st January 2021, any holder of a significant net short position (NSPs) in shares will be required to report to the relevant competent authority, when they reach 0.1% of the issued share capital, and every 0.1% above that. Positions will still be disclosed to the public when they reach 0.5% of the issued share capital and every 0.1% above that.
What’s next?
On 24th September 2021, ESMA launched a consultation paper on the review of the Short Selling Regulation (SSR).
The Consultation Paper sets out suggestions for operational improvements and policy clarifications on:
- The calculation of net short positions, the prohibition of uncovered short selling and the locate rule under which short selling trades can take place;
- The mechanism for transparency of net short positions and the proposal to publish aggregated net short positions per issuer based on all individual positions and the scope of the exemptions for shares that are more heavily traded in a third country; and
- The introduction of a centralised notification and publication system to reduce reporting burdens, increase cost efficiency and foster ESMA’s monitoring capacity and coordination powers in case of potential threats at EU level.
ESMA expects to publish a final report by the end of Q1 2022.
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