ESMA moves to slow short-selling in response to market turmoil due to Covid-19

On 16 March 2020 the European Securities and Markets Authority (ESMA) issued a decision[1] which temporarily requires investors to inform their relevant national competent authority if they hold a net short position which equals or exceeds 0.1% of the issued share capital of a public company traded on an EU regulated market. The decision was adapted to the EEA Agreement by decision[2] of the European Free Trade Association Surveillance Authority (ESA) shortly after ESMAs decision on 16 March 2020, making the decision effective in the wider EEA-area[3].

The measures were applied immediately and net short position holders have been required to notify NCAs of their relevant positions since the close of the trading session on Monday 16 March 2020. The temporary information requirement shall apply for three months and applies to any natural or legal person, irrespective of their country of residence in the event of their net short position exceeding the threshold.

The Norwegian Financial Supervisory Authority has furthermore stated that a similar threshold also will apply for Equity Certificates (Nw. “egenkapitalbevis”) in accordance with Section 3-14 (3) of the Norwegian Securities Trading Act. However, the reporting requirement do not apply to shares admitted to trading on a regulated market where the principal venue for the trading of the shares is located in a third country, or the short selling is done as a part of market making or stabilisation activities.

ESMA considers that the current situation constitutes a serious threat to market confidence and that a lowering of the reporting threshold, which is likely to stem short selling, is a proportionate and appropriate precautionary action that under “the exceptional circumstances linked to the ongoing COVID-19 pandemic, is essential for authorities to monitor developments in markets”.

With the financial markets currently in turmoil due to the impact by the Covid-19 virus, it is essential that the measures and policies implemented by both ESMA/ESA and National Competent Authorities are implemented swiftly, and with as much clarity for market participants as possible. ESMA, in coordination with NCAs, continues to monitor the development in the financial markets as a result of the COVID-19 situation and states that it is prepared to “use its powers to ensure the orderly functioning of EU markets, financial stability and investor protection”, following up on the language from the set of recommendation on market disclosure and financial reporting regarding Covid-19 issued on 11 March 2020, previously discussed in our newsletter from 17 March 2020[4].

As negligent and wilful breaches of the reporting requirement after the Norwegian Securities Trading Act Chapter 21 is punishable by penalties, administrative measures and,  in rare cases, prison up to one year BAHR recommends market participants to be aware of future measures by ESMA in respect of handling the Covid-19 virus in connection to market disclosure and financial reporting, in order to ensure operational continuity in line with current and potential future regulatory obligations.

BAHR is following the developments in the market closely. We receive many requests and questions relating to effects of Covid-19 and have assembled a special team of lawyers with different expertise, in order to rapidly respond to these matters as they arise.

Please do not hesitate to reach out to one of our contact persons below for further assistance.

Other newsletters from BAHR relating to Covid-19 as of now

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[1]https://www.esma.europa.eu/sites/default/files/library/esma70-155-9546_esma_decision_-_article_28_ssr_reporting_threshold.pdf

[2] http://www.eftasurv.int/da/DocumentDirectAction/outputDocument?docId=5299

[3] https://www.finanstilsynet.no/nyhetsarkiv/nyheter/2020/beslutning-om-shortsalg-fra-eftas-overvakningsorgan-esa-og-den-europeiske-verdipapir–og-markedstilsynsmyndigheten-esma/

[4] https://www.anpdm.com/article/43425141774146514B7846405D4A71/26298670/6044561

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