EUROPE: ESMA publishes EU short selling notification thresholds for sovereign debt

Friday October 12 2012

Under the EU Short Selling Regulation, notification is required of net short positions in sovereign debt which exceed prescribed thresholds. According to Article 7(2) of the EU Short Selling Regulation, ESMA has to publish a list of the thresholds applicable to the sovereign issuers for the purpose of the notification to competent authorities of significant net short position in sovereign debt.

The way these notification thresholds are defined is further specified in the Commission Delegated Regulation No 918/2012 (the “DR”). The DR specifies specify that initial threshold categories shall be:

1. 0.1% applicable where the total amount of outstanding issued sovereign debt is between 0 and 500 billion euros;

2. 0.5% applicable where the total amount of outstanding issued sovereign debt is above 500 billion euros or where there is a liquid futures market for the particular sovereign debt.

The additional incremental levels shall be set at 50% of the initial thresholds. The reporting thresholds shall be monetary amounts fixed by applying the percentage thresholds to the outstanding sovereign debt of the sovereign issuer. They will be revised and updated quarterly to reflect changes in the total amount of outstanding sovereign debt of each sovereign issuer.

In addition, the DR states that the amount of outstanding debt should be calculated using a duration adjusted approach. ESMA has published a Q&A document on how to proceed for the duration adjustment.

The figures of the amount of outstanding debt are duration adjusted (not nominal amounts). The figures published represent an approximation. At this stage, the figures are indicative and aim at assisting the investors in preparing implementation.

ESMA will publish the definitive thresholds by 1 November 2012. Those issuers for which there is no figure in the table will be updated as soon as ESMA receives the corresponding information from each relevant competent authority.

Click on the above link for more details.