European Union Net Short Position Reporting Threshold Reduced to 0.1% (Updated 17 December 2020)

The ESMA Decision does not affect the public net short reporting threshold under Article 6 of the SSR, which remains at 0.5%.

This is an emergency measure that ESMA is permitted to take under Article 28 (ESMA intervention powers in exceptional circumstances) of the SSR. ESMA considers lowering the reporting threshold a precautionary action that, under the exceptional circumstances linked to the ongoing COVID-19 pandemic, is essential for authorities to monitor developments in markets.

1. Who will be affected by the ESMA Decision?

Any person, irrespective of domicile or location, who as of today has a net short position in in-scope shares that reaches, exceeds or falls below 0.1% of the issued share capital of the relevant issuer (Position Holders).

2. To which shares does the ESMA Decision apply?

The ESMA Decision applies to net short positions in shares admitted to trading on a regulated market (that is, regulated markets in the EU, such as the main markets of the stock exchanges in the EU).

However, consistent with how Position Holders currently notify their net short positions to RCAs, positions arising from the following types of transactions, among others, should be taken into account in determining whether a Position Holder has crossed the threshold and therefore is required to notify the RCA:

• global depositary receipts (GDRs) and American depositary receipts (ADRs)
• transactions in related financial instruments, notably derivatives such as options, swaps, futures, contracts for difference and covered warrant

The ESMA Decision does 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. The ESMA Exempted Shares List identifies shares having their principal trading venue located in a third country.

Shares of UK issuers are still within the scope of the SSR despite the UK’s no longer being part of the EU, on the basis that EU law continues to apply in the UK during the Brexit transitional period (which ends on 31 December 2020).

3. Does the ESMA Decision apply to transactions conducted outside of the EU and/or outside of EU regulated market?

Yes, the ESMA Decision applies regardless of the trading venue if it results in creating or increasing a net short position in in-scope shares. Thus, it extends to transactions carried out on multilateral trading facilities or on an over-the-counter basis.

4. Are market makers exempted?

The ESMA Decision does not apply to firms that are carrying on market making activities under article 2(1)(k) of the SSR.

5. When will the ESMA Decision come into force, and for how long will it apply?

The ESMA Decision applies immediately (i.e., on/from 16 March 2020). The new 0.1% threshold lasts for three months from 16 March 2020.

Next Steps

Position Holders should determine whether their net short positions in in-scope shares reached and/or exceeded or have fallen below 0.1% after the entry into force of the ESMA Decision.

Position Holders with notifiable positions should identify (and notify) the RCA(s) of the in-scope share(s).

The RCA is generally the regulator of the most liquid market for the relevant instrument, in terms of liquidity. The RCA can be found on ESMA’s Financial Instruments Reference Database by searching it using the International Securities Identification Number of the relevant instrument, then clicking on the “More Info” tab. The RCA will be shown as an “Upcoming RCA” in the results page.

Some RCAs, such as the Swedish Financial Services Agency (FSA), allow the Position Holder to notify their net short position in in-scope shares via email, while other RCAs, including the FCA, require a prior registration (and in some cases prior approval) on their respective portals before a Position Holder is able to submit its notifications to the RCA.

Position Holders should consult local counsel as appropriate.