European Securities and Markets Authority Consults on Technical Advice on the Short Selling Regulation

The European Securities and Markets Authority has published a consultation paper seeking views on aspects of its January 2017 mandate from the European Commission. The Commission mandate requests ESMA's technical advice on elements of the Short Selling Regulation that relate to market making, short-term bans on short selling and the transparency, reporting and disclosure requirements around net short positions.

On market making, ESMA has been asked to look into whether the definition of "market making activities" is sufficiently clear as currently drafted in the SSR and, in particular, to assess the impact of the trading venue membership requirement featured in the definition on entities that make markets in OTC financial instruments. The definition of "market making activities" in the SSR does not align with the definition of "market maker" in the revised Markets in Financial Instruments Directive and ESMA has been asked to assess the consequences of this (if any). ESMA has also been asked to examine whether the scope of the current SSR exemption for market making activities is appropriate and whether the notification procedure is serving its function effectively. ESMA is seeking views on whether the membership requirement should be reconsidered for OTC derivatives, on the range of financial instruments that should be included in the exemption and whether the current approach to the notification requirement should be changed.

Regarding the short-term bans on short selling that the SSR allows in cases of a significant decline in prices, ESMA has been asked to look at whether the procedure for imposing such short-term bans is efficient, effective and relevant and whether it fosters consistent approaches across the EU. ESMA is seeking views on its proposal to amend the procedure to provide that only the national regulator of the financial instrument concerned can adopt a ban on that instrument and on whether other national regulators should have any power to oppose such a ban. ESMA is also considering amendments to the thresholds that are currently used to establish if there has been a significant change in price. Given that the ban has only been activated in a very small number of instances, ESMA is also proposing to change the scope of the ban to try to increase its effectiveness. ESMA proposes to improve the ban's effectiveness by: (i) extending the reach of the ban to cover the taking or increasing of net short positions - this will ensure the ban also captures OTC trading; and (ii) restricting the scope of the ban to shares traded on a trading venue given that other financial instruments have not so far been subject to bans under the SSR.

Finally, ESMA is consulting on a number of proposals around the transparency of net short positions and reporting requirements, with a view to making the requirements less burdensome for notifying entities while still providing national regulators with the information needed for proper supervision.

Comments are invited on the consultation paper by September 4, 2017. Comments should be submitted online. ESMA expects to issue a final report by December 31, 2017.

View the Consultation Paper (ESMA70-145-127).

View the Online Response Form.