EUROPE: Council Publishes Regulation on EU Short Selling

Wednesday February 22 2012

Further to the update of 16 November 2011 , the Economic and Financial Affairs Council has adopted new rules for EU short selling and certain aspects of credit default swaps.

The regulation introduces common EU disclosure requirements and harmonises the powers that regulators may use in exceptional situations where there is a serious threat to financial stability. The regulation, which also had to be agreed by the European Parliament, covers all types of financial instrument, but given the potential risks posed by EU short selling; this form of trading is a central element to be governed by the new rules. For significant net short positions in shares of EU listed companies, the regulation creates a two-tier reporting model.

At a lower threshold, positions must be reported privately to regulators so that the latter can detect and investigate short sales that might constitute abuse or create systemic risks. At a higher threshold, positions must be disclosed to the market in order to provide useful information to other market participants.

The European Securities and Markets Authority is currently consulting on technical advice and guidelines to the Commission. It is expected that the Regulation will apply from November 2012.

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