GERMANY: BaFin Germany forwards email detailing information on new EU Short Selling regime

Wednesday October 31 2012

The German Regulator, BaFin, has forwarded the following information in anticipation of the new EU Short Selling Regulation which enters into force on 1st November:

“As you already know, the Regulation (EU) No 236/2012 of the European Parliament and of the Council of 14 March 2012 on Germany short selling and certain aspects of credit default swaps (hereinafter: SSR) will apply from 1 November 2012.

The EU short selling regime will replace the German short selling regime, especially sections 30h, 30i and 30j of the Securities Trading Act, which applied so far. In contrast to the transparency obligations provided by the German short selling regime, which covered only net short positions in shares, the European Regulation will also require the notification of net short positions in sovereign debt.

First notification

1. When must the first notification and/or publication be submitted?

The EU Short Selling Regulation will apply as from 1 November 2012. However, since this is a statutory holiday in some federal states in Germany, the first notification or, where relevant, publication relates to net short positions existing or having arisen on 2 November 2012. On account of the weekend that follows 2 November 2012, such net short positions must be notified to BaFin by 3.30 p.m. (German time) on 5 November 2012 and, if subject to the publication requirement, also published within such period in the Federal Gazette.

2. Is there any grandfathering provision for notifications and publications submitted prior to 1 November?

No, there is no grandfathering provision for notifications and publications submitted prior to 1 November 2012, with the result that all notifications and publications have to be submitted again.

EXKURSION: ESMA Q&A in this context:

Question 2c: In Member States where a national transparency regime was already in place before the Regulation applies, do holders of existing short positions already notified to the concerned competent authority and/or publicly disclosed under that regime have to make new notifications and (if applicable) disclosures according to European regime?

If so, how should the “position date” field in the form be filled in if the threshold has been crossed before the entry into application of the Regulation?

Answer 2c: Yes they do. Notifications, and where relevant, disclosures of net short positions need to comply with the format specified in the Regulatory and Implementing Technical Standards adopted under the new European regime. This applies to existing notifiable or disclosable positions obtained before 1 November 2012 as well as those created on or after that date.

The “position date” field in the form to use for notification or for disclosure should be filled in with either 1st November 2012 0r 2nd November 2012, depending on the trading calendar of the Member State for the concerned financial instrument. (remark: In case of Germany use the 2nd November.)

ESMA Q&As (2012 | ESMA/2012/666, 1. Update)

Funds and portfolios

1. Do any transparency requirements for net short positions exist at the level of the individual funds managed by a management entity?

No, if the individual fund is managed by a management entity, no direct notification and publication requirements exist. At the level of the individual fund, however, the net short position is calculated and, if applicable, included in the calculation of the net short position of the respective management entity (Article 12 of the DA; see also next Question).

2. How are the positions of a management entity managing several funds and/or portfolios to be calculated?

If several funds or portfolios are managed by one management entity, the net short position is initially calculated in a first step at the level of each individual fund or portfolio according to the general rules.

After that, the existing net short positions are not notified individually for the funds but are initially aggregated depending on the investment strategy at the level of the management entity. The investment strategy may be oriented towards a net short position or a net long position of the respective fund (Article 12(2)(a) of the DA). This total net short position must be notified to the competent authority and, if applicable, published.

Example:

A management entity V manages three funds (with net short positions in share XY of -0.15%, -0.2% and +0.3%). The positions of the funds pursuing a short strategy for share XY are now aggregated. Ultimately, all net short positions in share XY, irrespective of the net long positions of other funds, are aggregated, thus resulting here in an aggregated net short position in share XY of -0.35% for the management entity V.

3. To whom does the notification requirement apply in the case of managed funds and/or portfolios, and how is the notification and publication form to be filled out?

The notification requirement applies to the management entity if it is a legal entity, or to the company to which it belongs (Articles 12 and 13 of the EU Short Selling Regulation in conjunction with Article 12(2)(c) of the DA). The management entity must always notify or, where relevant, publish the net short position if the total net short position of the same investment strategy of the individual funds or the portfolio as a whole crosses or reaches a threshold. It is only this aggregated net short position that it notifies or, where relevant, publishes. The individual funds and/or portfolios do not notify separately (or, where relevant, publish separately) their net short positions.

In the notification and publication form, the management entity, if it is a legal entity, is the position holder subject to the notification requirement. If the management entity is not a legal entity, the company to which the management entity belongs is the position holder subject to the notification requirement.

This does not affect the possibility of appointing an external third party to satisfy the notification and, where relevant, publication requirements. If this is done, the external third party is the reporting person and the management entity is the position holder.

Further explanations are also found in the Q&As on the EU Short Selling Regulation published by the European Securities and Markets Authority (ESMA).

Groups

1. How are positions of a group comprising several individual companies to be calculated?

In a group, the net short positions are initially calculated at the level of each individual legal entity (individual companies) according to the general provisions. Here, a distinction has to be made between management activities and non-management activities (see Question 30). The net short positions thus calculated are then aggregated at the level of the group irrespective of the investment strategies of the individual companies (net short or net long strategy). That means that from all net short and net long positions one net short position is formed at group level (Article 3(7) sentence 2 of the EU Short Selling Regulation in conjunction with Article 13 of the DA).

2. When do transparency requirements exist for groups and when for individual companies of the group?

As a general rule, both each individual legal entity and the group must notify and, where applicable, publish the net short position separately – with the group doing so in aggregated form. However, this does not apply if an aggregated net short position subject to the notification requirement exists at group level. In such case only one legal entity specified by the group notifies the aggregated net short position of the group and publishes the same where relevant. This applies irrespective of how high the respective net short positions of the individual companies are.

3. To whom does the notification requirement apply in groups and how is the notification and publication form to be filled out?

a) Notification requirement at the level of the individual company

If there is no notification and, where relevant, publication requirement at group level, but an individual company, for example the parent company, has a net short position to be notified and, where relevant, published, that position is the one subject to the notification requirement. The individual company is then the position holder subject to the notification requirement in the notification and publication form.

Example:

Individual company A holds a net short position in share XY of -0.15%. Individual company M, which at the same time is the parent company of the group, holds a net short position of -0.3% and individual company C of +0.5%. At group level this results in a total net short position of +0.05%. Only the net short position of the individual company M of -0.3% is subject to the notification requirement.

b) Notification at group level

If there is a notification and, where relevant, publication requirement at group level, the parent company is subject to the notification requirement. In the notification and publication form, the parent company is the position holder; in addition, it must be stated under 6. “Comment” that the parent company is not notifying an individual position but a group position. For this purpose a reference to the group must additionally be provided, e.g. “group position for XY group”. It is only by this additional notice in the comment field that it becomes clear that the position is a group position and not, e.g., the parent company`s own net short position.

Example:

Individual company A holds a net short position in share XY of -0.15%. Individual company M, which at the same time is the parent company of the group, holds a net short position of -0.3% and individual company C of +0.05%. At group level this results in a total net short position of -0.4%. Only this total net short position of the group is subject to the notification requirement. The notification obligation applies to the parent company M which provides the remark “Group position for XY group” in the form.

This does not affect the possibility of appointing an external third party to satisfy the notification and, where relevant, publication requirements. If this is done, the external third party is the reporting person and the individual company or parent company is the position holder.

Further explanations are also found in the Q&As on the EU Short Selling Regulation published by the European Securities and Markets Authority (ESMA).

Electronic reporting procedures (MVP-Portal)

1. How is a notification and/or publication to be submitted?

Net short positions may be notified and published exclusively via an electronic reporting channel. For notifications, BaFin makes available an electronic notification procedure by means of the Reporting and Publishing Platform (Melde- und Veröffentlichungsplattform – MVP) accessible via the Internet (http://www.bafin.de/EN/DataDocuments/MVP/MVPportal/NettoLeerverkauf/NettoLeerverkauf_node.html (English).

Publications, however, are to be made in the Federal Gazette (https://www.bundesanzeiger.de/nlp/ (German); https://publikations-plattform.de/wissenswertes/nlp (Information; German and English))

2. Existing Registrations

Basically you can use your application to the specialised procedure “net short positions” also for notifications according to the new European Regulation. This only shall not apply if you submitted a powers of attorney and if this certificate makes expressly reference to the German net short regime. In this case the power of attorney does not cover the notifications according to SSR. Therefore, your authorization to submit notifications through BaFin’s MVP portal would possibly end on 1 November 2012 (Please see e-Mail in Annex).

Further condition is that the new provisions concerning the notification of net short positions in groups and funds do not require a further authorization (see above under Funds and portfolios and Groups).

3. New notification-forms

For the reporting of net short positions according to the EU LeerverkaufsVO you have to use new notification-forms. These are expected to be available from 2 November 2012 in addition to the forms according to the German regulation. Please use for notifications according to the EU LeerverkaufsVO only the new forms. The old forms scheduled to be removed on 2 November 2012.”