ITALY: Consob announces emergency measures on Italy short selling

Tuesday October 28 2014

Consob has announced that it has decided to temporarily prohibit the creation or the increase of net short positions on Banca MPS (ISIN code: IT0004984842) and Banca Carige (ISIN code: IT0003211601) shares.

The ban has been adopted pursuant to Article 20 of EU Regulation no. 236/2012 on Short Selling, taking into account the market trend on the two abovementioned shares.

The ban also affects derivative instruments which have Banca MPS or Banca Carige shares as underlying.

The ban applies to intraday transactions and to transactions carried out outside the Italian markets. Over-the-counter transactions are affected as well. The prohibition applies irrespective of their country of residence, regardless of whether trading takes place in Italy or in another EU or non-EU country.

Transactions in index-related instruments are exempted from the ban, taking into account the marginal weight of Banca MPS and Banca Carige shares in such indices.

The prohibition only refers to creating or increasing a net short position. Therefore, the investor (not exempted) who opened a net short position before the entry into force of the prohibition can reduce or keep it. Keeping a previous net short position unaltered does not infringe the prohibition. On the other hand, increasing a position after having reduced it is not allowed.

Investors are not allowed to use derivatives to create a net short position; they may only use derivatives to hedge, create or extend a net long position.

However, in case a net short position is increased due to a variation of the relevant delta, this is not considered an infringement to the prohibition.

Net short positions taken before the entry into force of the prohibition through derivatives are not affected.

Investors holding a net short position in a given restricted share through expiring derivatives are allowed to roll forward their position, provided that the net short position so created does not exceed the one held previously.

Trading in index-related instruments (like derivatives, ETF, certificates) is allowed due to the marginal weight of the restricted shares in the most relevant indices (like for example the FTSE MIB, the Euro Stoxx and the Euro Stoxx Bank indices).

However, creating or increasing a net short position in one or more of the restricted shares by combining transactions in index-related instruments and other transactions is prohibited. For instance, it is prohibited to implement a strategy consisting in:

• selling futures contracts on an index whose underlying basket includes one or more of the restricted shares, and

• buying futures contracts on all/most of the securities included in the underlying basket of the index except for the restricted shares.

It is up to each investor to be able to prove that decisions taken through index products are not a way to enter into short strategies over a specific restricted share.

In case an investor had placed an order that is not executed by the time the prohibition has entered into force but, if executed, would create or increase a net short position, the investor must cancel that order.

The ban will apply from the morning of 28 October, until 23.59 on 10 November 2014.

Yesterday`s prohibition in BMPS shares has been superceded by the above and ceases to have effect.

Consob has published an FAQs document to assist with interpretation.

Click on the above link for details.