On 26 May 2010, the Committee of European Securities Regulators ("CESR") published technical details in respect of its proposed model (the "Model") for a pan-European short selling disclosure regime (the "Second Report").1 These details follow and should be read in conjunction with the publication of an earlier CESR report and feedback statement that set out proposals for the Model on 2 March 2010 (the "First Report").2
Background – The Model
As outlined in our update on 9 March 2010,3 CESR's First Report provides initial details of a regime, whereby short sellers will be required to make private disclosure to their relevant national regulator, at the end of each trading day when their net short position reaches 0.2% of an issuer's issued share capital. Each further movement of 0.1% of issued share capital (upwards or downwards above the 0.2% threshold) will then trigger further disclosure obligations to the regulator. Once the net short position is greater than 0.5% of the issuer's issued share capital, the short seller will have to make a public disclosure of its position to the market as a whole.
The Model is only proposed to apply to EEA issuers with short positions that create an economic exposure to shares admitted to trading on an EEA-regulated market and/or an EEA Multilateral Trading Facility ("MTF"). It will also apply to all equities and will not be limited by sector or the nature of the relevant security.
CESR's initial description of the Model in its First Report provided high level information in respect of the two tiered disclosure system referred to above. The Second Report, however, aims to provide further technical details in respect of CESR's proposed regime, as set out below.
Calculating the Net Short Position
A short seller's net short position, calculated by netting its long and short positions, will need to be determined at the end of each trading day. Intra-day positions will not have to be disclosed. Such calculations must take into account all instruments that give rise to exposure (whether direct or indirect) to the issued share capital of a particular company. These may include futures, equity swaps, contracts for differences, spread bets, options or short sales in the cash markets. Economic interests held as part of a basket, index or exchange traded fund, and derivatives products relating to an index must also be taken into account when considering a position with respect to a particular share.