17 March 2020

This article was written by Natalie Lim.

The statement follows the decision by ESMA to amend the thresholds for the notification of short selling positions to national competent authorities under the Short Selling Regulations (SSR), a precautionary action that ESMA considers essential under exceptional circumstances linked to the ongoing Covid-19 outbreak.

Short Selling Regulation (SSR)

Under the SSR, EU regulators and the FCA have the power to apply short or long-term bans on short sales in shares and certain other financial instruments. If an EU regulator (or the FCA) decides to impose a ban, that regulator notifies other EU regulators and the FCA, who will then consider whether to do the same in their jurisdictions. The aim is to avoid short selling activity linked to specific shares moving to other jurisdictions where these shares are also traded. 

When considering whether to use its short selling powers following action by an EU regulator, the FCA’s standard policy has been to assist that regulator. The FCA expects to continue that policy for future requests, unless it considers assistance to be unnecessary due to exceptional reasons. 

The FCA has rarely imposed its own ban on the short selling of UK shares and has never initiated a ban with its new powers under the SSR. Although it cannot rule out that this will be appropriate in certain circumstances, the FCA emphasised that it sets a high bar on imposing any bans.

ESMA decision and FCA response

In a statement of 16 March, ESMA announced its decision to temporarily require the holders of net short positions in shares traded on an EU regulated market to notify the relevant national competent authority (i.e. the FCA, in the UK) if the position reaches or exceeds 0.1% of the issued share capital after the entry into force of the decision.

The FCA confirms that it will apply this change in the UK. As changes to its technology are required so that it can receive this data, the regulator is working on what is involved to effect these changes and the timeframe for implementing them. 

In the meantime, firms should continue to report according to previous thresholds until further notice.

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