Securities Markets News

ESMA consults with the market in connection with the elaboration of technical standards in relation to the new European regulation on short-selling.

On 24 January 2012, the European Securities and Markets Authority (“ESMA”) published a consultation paper on draft technical standards in respect of the new regulation on short selling and certain aspects of Credit Default Swaps (the “Regulation”), of which it is required to submit definitive versions to the European Commission by 31 March 2012.
The 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:
(f) 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);
(g) imposes certain ‘certainty of settlement’-requirements in relation to uncovered short selling of shares and sovereign bonds;
(h) 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;
(i) provides national competent authorities and ESMA with additional powers to intervene in the markets in times of stress; and
(j) 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 concerning the draft technical standards that ESMA proposes to submit to the European Commission for endorsement by the end of March 2012. The deadline for stakeholders to submit comments has been set on 13 February 2012.

Prior to its publication, non-public information concerning expected dividend payment or changes in dividend policies and payment patterns may qualify as “inside information” under the MAD. In this Q&A, ESMA provides guidance to issuers whose shares are used as underlying of listed derivative contracts.

Further to the guidance published by its predecessor (the Committee of European Securities Regulators) regarding the interpretation of the Market Abuse Directive (see CESR/04-505b; May 2005, CESR/06-562b; July 2007 and CESR/09-219; 15 May 2009), the European Securities and Markets Authority (“ESMA”) published on 9 January 2012 a Q&A on the Market Abuse Directive regarding "inside information" on dividends.

In the document, ESMA sets out what is expected from issuers of shares that are used as underlying of listed derivative contracts with respect to the disclosure of information on their dividend policy and change in this policy. The document will be updated when new questions or issues arise.