EUROPEAN UNION: ESMA Issues Opinion on Short Selling Ban Imposed by CNMV on Liberbank Shares

In accordance with Article 26 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 Spanish Financial Regulator, Comisión Nacional del Mercado de Valores (CNMV) notified the European Financial Regulator, ESMA on 11 June 2017 of its intention to make use of its powers of intervention in exceptional circumstances and to introduce an emergency measure under Article 20(2)(a) and (b)of that Regulation.

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 European Securities and Markets Authority (ESMA) shall within 24 hours of the notification made by a competent authority under Article 26 of that Regulation, issue an opinion on whether it considers the measure or proposed measure is necessary to address the exceptional circumstances.

The concerned emergency measure consists of a ban on net short positions on shares issued by Liberbank, S.A. (ISIN ES0168675090, hereinafter “Liberbank”), either directly or through related instruments relevant for the calculation of the net short position determined in Annex I, part 1, articles 5 and 6 of Commission Delegated Regulation EU Nº 918/2012 and irrespectively of the trading venue or market in which the transactions leading to those positions are conducted. The proposed measure will not apply to trading in index-related instruments or baskets of financial instruments.

The proposed measure is expected to enter into force on 12 June 2017 at 08:15 am CET, (before trading session begins) and to be applicable until 23:59 of 12 July 2017.

The CNMV justifies the proposed measure by the existence of specific adverse situations or circumstances that constitute a serious threat to market confidence in the Spanish banking sector.

Liberbank has experienced severe share price falls in the last weeks. In the last three weeks (between 22 May and 9 June 2017), it has lost 45% of its market capitalisation. In the last three trading sessions, i.e. 7, 8 and 9 of June 2017, it fell respectively 7,68%, 18,02% and 17,57%, with noticeable increases in the traded volumes. The CNMV notes that there is no underlying inside information from Liberbank that could justify this downward trend.

ESMA’s Opinion

ESMA considered the circumstances described above to be adverse events or developments which constitute a serious threat to market confidence and potential risk to financial stability in Spain

ESMA considers that the duration of the measure of one month, instead of the maximum period of three months allowed by the Regulation, is justified, as the CNMV intends to keep the measure for as short a time period as possible and only while the risks to market confidence and potentially to financial stability would still be significant. For those reasons, ESMA agrees with the CNMV’s intention to lift the ban once the situation returns to normal parameters, but at the same time recognises that the CNMV cannot, at present, exclude a renewal of the measure if the threat were still to be present at the expiry of it. Therefore, ESMA recommends CNMV to monitor closely the situation.

Please follow the link at the top of the page for ESMA’s Opinion.