The European Securities and Markets Authority (“ESMA”) has recently issued a decision to temporarily require the holders of net short positions in shares traded on a regulated market within the European Union (the “EU”), to notify the relevant national competent authority where the respective position reaches or exceeds 0.1% of the issued share capital. The decision has entered into force immediately, and therefore net short position holders are required to notify their national competent authority as from the close of trading on Monday 16th March. The temporary reporting obligations apply to both natural and legal persons, irrespective of their country of residence.
ESMA has taken the decision to lower the reporting threshold amid the exceptional circumstances surrounding the ongoing COVID-19 pandemic. ESMA considers that the current circumstances constitute a serious threat to market confidence in the EU, and that the proposed measure is appropriate and proportionate to address the current threat level to EU financial markets. By lowering the notification threshold, national competent authorities are enabled to assess the situation adequately and consequently react if more stringent actions will be required.
As things stand, there is a clear risk that the downward trend which EU stock markets are facing will continue in the coming days and weeks. Sever price falls will undoubtedly threaten the integrity and orderly function of the markets, dampening market confidence. Short sales amid the current circumstances may contribute to the acceleration of price volatility, exacerbating market losses. Furthermore, market participants may take new short positions in order to profit from the expected price falls, which will undoubtedly worsen the price falls seen in past weeks.
Feel free to contact us on any queries relating to the temporary reporting obligations.