On 14 June 2010, the European Commission (the "Commission") published a public consultation to aid the finalisation of proposals on stand alone legislation dealing with short selling (the "Consultation").1 The Consultation aims to: 1) consider policy options in respect of rules that will increase the transparency of short sales, 2) reduce the risks of uncovered (naked) short selling, and 3) provide emergency powers for competent authorities to impose temporary short selling restrictions. It also gives some consideration to the role that the European Securities and Markets Authority ("ESMA") may play in this regard.
The Consultation closely follows the publication of a March 2010 report and feedback statement by the Committee of European Securities Regulators ("CESR") that set out proposals for a pan-European model for the disclosure of short positions in EU shares (the "CESR Report").2 The contents of the CESR Report (and technical details in respect thereof) are outlined in our updates on 9 March 20103 and 2 June 2010.4 In summary, CESR's model (the "Model") proposes a two tiered disclosure system, whereby short sellers first make private disclosure to their relevant national regulator, at the end of each trading day where 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. However, once their net short position is greater than 0.5% of the issuer's issued share capital, the short seller will have to make a second public disclosure of its position to the market as a whole.
The policy options of the Commission are closely predicated upon CESR's Model, which is proposed to apply to EEA issuers with short positions that create an economic exposure to any share admitted to trading on an EEAregulated market and/or an EEA Multilateral Trading Facility ("MTF"). This might include economic net short positions in shares created by the use of derivatives such as options, futures, and CFDs. However, the Commission has asked in the Consultation, whether the future legislation should follow CESR's suggestions as outlined above, or apply the regime only to EU shares and EU sovereign bonds. On the basis of the latter approach, the Commission has suggested following CESR's two tiered disclosure regime in respect of EU shares. However, in respect...