EUROPE: EU Commission publishes report on EU Short Selling Regulation

Wednesday December 18 2013

The European Commission has published its report on the evaluation of the EU Short Selling Regulation. The report follows a mandate given to ESMA to carry out a quantitative analysis of the available short selling data and a consultation of competent authorities and market participants. ESMA issued its technical advice on the evaluation of the SSR on 3 June 2013.

The Commission report covers the following:

• the appropriateness of the notification and disclosure procedures
• the impact of individual disclosure requirements
• the appropriateness of direct, centralised reporting to ESMA
• restrictions and requirements on the uncovered short selling in shares, sovereign debt and sovereign CDS
• functioning of the market-making exemption under the SSR
• intervention powers under the SSR

The Commission report concludes that, based on the limited data available, the SSR has had a positive impact in terms of greater transparency of short sales and reduced settlement failures, and a relatively mixed economic impact. There is no compelling evidence of a substantial negative impact of the SSR in terms of reduced liquidity of sovereign CDS. The empirical evidence available shows that the SSR has had some beneficial effects on volatility, mixed effects on liquidity and led to a slight decrease in price discovery.

The Commission is of the view that it is too early, based on available evidence, to draw firm conclusions on the operation of the SSR framework which would warrant a revision of the legislation at this stage. The Commission will continue monitoring the application of the SSR. In order to ensure a smooth functioning of the short selling legal framework, the Commission considers that a new evaluation of the appropriateness and impact of the SSR could be carried out based on more empirical data and evidence and once the competent authorities have accumulated sufficient regulatory experience of applying the SSR, possibly by 2016, three years after the entry into application of the SSR. Such an analysis of the effects and impact of the SSR should be based on the input of ESMA, the analysis of available data and the feedback of competent authorities and market participants.

Click on the above link for the report.