On 15 February 2012, the European Securities and Markets Authority (“ESMA”) published a consultation paper regarding its draft technical advice on possible delegated acts in respect of the new regulation on short selling and certain aspects of Credit Default Swaps, of which it is required to submit a definitive version to the European Commission by 31 March 2012.
The new regulation will enter into force on 1 November 2012. It provides for a harmonised European framework governing short selling of certain listed instruments. Among others the Regulation:
(a) prohibits the use of ‘uncovered’ Credit Default Swaps (“CDs”) in sovereign debt, i.e. transactions where no underlying long position exists in the relevant sovereign bond are no longer permitted (Member States are however allowed to suspend the prohibition in their own jurisdiction in certain circumstances);
(b) imposes certain ‘certainty of settlement’-requirements in relation to uncovered short selling of shares and sovereign bonds;
(c) introduces an harmonised notification and reporting regime for shares, whereby holders of net short positions must notify these privately to the regulator when they exceed 0.2% of the issued share capital of the issuer company and must publicly disclose these (on a named basis) when they exceed 0.5%. In each case, further notification or reporting is required at each 0.1% above the initial threshold;
(d) provides national competent authorities and ESMA with additional powers to intervene in the markets in times of stress; and
(e) excludes sales under a repo agreement or futures contracts from the definition of short sales in shares and debt instruments.
The consultation is designed to obtain comments from stakeholders on the technical advice that ESMA proposes to give to the European Commission on a number of possible delegated acts concerning the Regulation. The deadline for stakeholders to submit comments has been set on 9 March 2012.