European Securities and Markets Authority Publishes Report on Short Selling Regulation Review

The European Securities and Markets Authority has published a report on its review of certain aspects of the EU Short Selling Regulation. The review was prompted by the volume of short selling that occurred around the outbreak of the COVID-19 pandemic and national regulators' responses to it. ESMA also considered the possibility in Europe of high volatility in so-called "meme-stocks" (stocks which gain popularity through social media.

The report focuses on potential changes to three key aspects of the SSR:
 

• Amendments that could be made to the current provisions governing emergency measures in the SSR, in response to the short selling bans implemented by many European jurisdictions during COVID-19. Further details of European short selling bans around the time of the COVID-19 outbreak can be found here. The proposed amendments include changing the scope of the powers of a "relevant competent authority" (i.e., national regulator) to clarify that, in the context of emergency measures to implement long-term bans, the RCA that is competent to impose emergency measures for the target financial instrument is also competent to do so for other instruments which confer a financial advantage in the event of a decrease in the value of the target instrument. ESMA also plans to clarify that RCAs are able to ban, or impose conditions upon, both short sales and transactions other than short sales which confer a financial advantage in the event of a decrease in the price of a financial instrument, and that the two powers are not mutually exclusive. 
• Enhancements that could be made to existing rules against uncovered short sales, e.g., the introduction of a requirement on those entering short sale arrangements to keep records of those arrangements for five years and the harmonization of sanctions for "naked" short-selling, which would be based upon a "minimum-maximum" administrative pecuniary sanction in line with the administrative sanctions imposed under the EU Market Abuse Regulation.
• Introduction of a centralized system for publication and disclosure to the public of net short positions.
• ESMA will submit its report to the European Commission and will provide further support to any potential review report of the SSR.

 
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