EUROPEAN UNION: ESMA issues opinion on Greek short selling ban

Tuesday September 1 2015

On 31 August 2015, the European Securities and Markets Authority (ESMA) issued their official opinion on the emergency measure by the Greek Hellenic Capital Markets Commission (HCMC) under Section 1 of Chapter V of Regulation No 236/2012 on short selling and certain aspects of credit default swaps.

According to Article 27(2) of Regulation (EU) No 236/2012 of the European Parliament and of the Council of 14 March 2012 on short selling and certain aspects of credit default swaps (the Regulation), ESMA shall within 24 hours of the notification having been made by a competent authority under Article 26 of the Regulation issue an opinion on whether it considers the measure or proposed measure necessary to address the exceptional circumstances.

ESMA’s competence to deliver an opinion is based on Article 29(1)(a) of Regulation (EC) No 1095/2010 (ESMA Regulation). In accordance with Article 44(1) of the ESMA Regulation the Board of Supervisors has adopted this opinion.

ESMA is adopting the following opinion on the recent measure, on the basis of Article 27(2) of Regulation 236/2012 on Short Selling and certain aspects of credit default swaps:

On the adverse events or developments – ESMA considers that adverse developments which constitute a serious threat to market confidence in the Greek market still persist. Comparing the current situation in the Hellenic Republic with related events over the past few years, the threat to financial stability and investor protection is obvious. Despite the partial reopening of credit institutions on 20 July 2015, and the reopening on 3 August 2015 of the ATHEX regulated market, the Multilateral Trading Facility of ‘EN.A’, and of the Electronic Secondary Market ‘HDAT’ for government bonds, the situation of fragility in the financial system and in the Greek economy persists, as highlighted by the high volatility already experienced on the ATHEX in the course of the first days after reopening. However, ESMA considers that the severity of the market events is lower than in previous weeks.

On the appropriateness and proportionality of the measure – ESMA considers that the measure means in practice a partial lifting of the previous ban on short position, both in terms of the instruments covered and of the general restriction to operate on Greek underlyings. Therefore, ESMA considers that the measure is appropriate and proportionate to address the above mentioned threats that persist in the Greek financial markets. Short sales in shares and units of ETFs could still exacerbate the threats to financial stability, especially as regards the financial sector. However the new measure, with a smaller scope, is not restricting the activities of the derivative markets. In that respect, ESMA understands that the measure accompanies the gradual normalization of financial conditions in Greece. The exemption foreseen for market making activities is justified by the fact that market makers should be allowed to properly carry out their activity, thus enhancing the liquidity on the Greek shares and ETFs units, and contributing to the adequate functioning of Greek financial markets.

On the duration of the measure – ESMA considers that the duration of the measure is justified, taking into account that the capital controls are still in place, the on-going recapitalisation process and the electoral calendar. Under these circumstances, ESMA considers it is necessary and appropriate for HCMC to impose a short selling ban on shares and ETFs units that would last until the end of September, in view of supporting the proper functioning of the Greek financial markets in this transitional period. Besides, ESMA takes into consideration HCMC’s statement in its notification of intent that the measure may be lifted before the end of the established period or renewed in accordance with the provisions of Regulation (EU) No 236/2012 if circumstances that justified the imposition of the measure improve, persist or worsen.

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