AIMA GUIDANCE NOTE
On the EU Short Selling Regulation
(updated 1 November 2012)
November 2012
AIMA Guidance Note on the EU Short Selling Regulation
Contents
Section A
Introduction
Section B
Defined terms used within the Guidance Note
Section C
Frequently Asked Questions
Section D
The extra-territorial scope of the Short Selling Regulation
Section E
Other resources
Annex 1
The legislative texts comprising the Short Selling Regulation and AIMA’s Summaries
Annex 2
Notification and disclosure requirements in Member States
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AIMA Guidance Note on the EU Short Selling Regulation
Disclaimer
This document is provided to and for AIMA members only. It is intended as indicative guidance only and is
not to be taken or treated as a substitute for specific advice, whether legal advice or otherwise.
All copyright in this document belongs to AIMA and reproduction of part or all of the contents is strictly
prohibited unless prior permission is given in writing by AIMA.
A. Introduction
This guidance note (the Guidance Note) is intended to provide AIMA members with indicative guidance on a
number of areas where they may have difficulty in interpreting and/or implementing the measures contained in
the Regulation (as defined below), which came into force across the EU, and beyond, on 1 November 2012.
We intend to update this Guidance Note both on an ongoing basis, to enable it to evolve as members raise further
questions with us and offer us their comments as to how they intend to comply with specific provisions within the
Regulation. In this way, we hope that we can build a body of buy side ‘sound practice’ in respect of the key areas
which are causing concern.
The Guidance Note comprises the following sections:
Section B
Sets out the defined terms used within the Guidance Note.
Section C
Examines a number of frequently asked questions which have been raised by members and
seeks to suggest sound practice which members may wish to follow in respect of a number of
the main issues.
Section D
Looks at the issue of the extraterritorial scope of the Regulation and its application to non-EU
persons.
Section E
Sets out other resources which AIMA members might find helpful.
Annex 1
Provides a note on the legislative texts comprising the Regulation together with AIMA’s
Summaries of these.
Annex 2
Sets out the mechanism for notifications of significant net short positions to competent
authorities in a number of different Member States.
B. Defined terms used within the Guidance Note
For links to the relevant texts, see Annex 1.
Delegated Acts Regulation
Commission Delegated Regulation (EU) No 918/2012 of 5 July
2012 supplementing Regulation (EU) No 236/2012 of the European
Parliament and of the Council on short selling and certain aspects
of credit default swaps with regard to definitions, the calculation
of net short positions, covered sovereign credit default swaps,
notification thresholds, liquidity thresholds for suspending
restrictions, significant falls in the value of financial instruments
and adverse events.
Final Report (Delegated Acts)
ESMA's technical advice on possible Delegated Acts concerning the
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AIMA Guidance Note on the EU Short Selling Regulation
regulation on short selling and certain aspects of credit default
swaps ((EC) No 236/2012), ESMA/2012/263 of 19 April 2012.
Final Report (Technical Standards)
ESMA’s technical advice on draft technical standards on the
Regulation (EU) 236/2012 of the European Parliament and of the
Council on short selling and certain aspects of credit default
swaps, ESMA/2012/228 of 30 March 2012.
First RTS Regulation
Commission Delegated Regulation (EU) No 826/2012 of 29 June
2012 supplementing Regulation (EU) No 236/2012 of the European
Parliament and of the Council with regard to regulatory technical
standards on notification and disclosure requirements with regard
to net short positions, the details of the information to be
provided to the European Securities and Markets Authority in
relation to net short positions and the method for calculating
turnover to determine exempted shares.
ITS Regulation
Commission Implementing Regulation (EU) No 827/2012 of 29
June 2012 laying down implementing technical standards with
regard to the means for public disclosure of net position in
shares, the format of the information to be provided to the
European Securities and Markets Authority in relation to net short
positions, the types of agreements, arrangements and measures
to adequately ensure that shares or sovereign debt instruments
are available for settlement and the dates and period for the
determination of the principal venue for a share according to
Regulation (EU) No 236/2012 of the European Parliament and of
the Council on short selling and certain aspects of credit default
swaps.
Q&As
ESMA’s Questions & Answers on Implementation of the Regulation
on short selling and certain aspects of credit default swaps (1st
UPDATE), ESMA/2012/666 of 10 October 2012.
Regulation
Regulation (EU) No 236/2012 of the European Parliament and of
the Council on short selling and certain aspects of credit default
swaps.
Second RTS Regulation
Commission Delegated Regulation (EU) No 919/2012 of 5 July
2012 supplementing Regulation (EU) No 236/2012 of the European
Parliament and of the Council with regard to regulatory technical
standards for the method of calculation of the fall in value for
liquid shares and other financial instruments.
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AIMA Guidance Note on the EU Short Selling Regulation
C.
Frequently Asked Questions
The questions below have been raised by AIMA members and the responses given represent AIMA’s indicative
guidance only. If you have questions which are specific to your firm’s business model or structure, you should
seek appropriate professional advice.
The questions are organised into the following general topics:
1.
2.
3.
4.
5.
6.
7.
Calculation of net sovereign debt – ‘Duration adjustment’.
Calculation of net sovereign debt - "Netting correlated positions".
Issues around cover and correlation.
The definition of “Investment Strategy” “Management activities” and “Management entity”
Issues around the calculation and aggregation of positions
Issues around reporting obligation under the Regulation.
Miscellaneous issues under the Regulation.
If you have any additional questions regarding implementation of the Regulation which you would like to see
dealt with in an updated edition of this Guidance Note, please contact info@aima.org.
1.
Calculation of net sovereign debt – ‘Duration adjustment’
Paragraph 1 of Annex II, Part 2 (The delta-adjusted model for sovereign debt) at page 27 of the Delegated Acts
Regulation, dealing with netting for the net sovereign debt calculation, states:
“Any cash positions shall be taken into account using their nominal value duration adjusted. Options and
other derivative instruments shall be adjusted by their delta which shall be calculated in accordance with
Part 1. Calculations of net short positions containing both cash investments and derivatives shall be the
individual delta adjusted position of every derivative that is held in the portfolio, adding or subtracting all
cash positions and cash positions shall have a delta equal to 1.”
In its technical advice of April 2012, ESMA proposed two alternatives in terms of the netting calculation, one of
which was nominal. ESMA noted that one disadvantage with nominal was the issue of lumping together different
maturities. The reference to 'duration adjusted' seems to be the Commission's attempt to deal with that point.
However, the Commission has offered no commentary on this in the Delegated Acts Regulation. It will, therefore,
fall to ESMA to provide more specific advice.
In the longer term, AIMA understands that that this will be achieved through ESMA guidelines, following a public
consultation. However, with the Regulation in force on 1 November 2012, there is a pressing need for a short term
solution and ESMA decided this should be achieved through the Q&As.
Q.1
If there is no further clarification published prior to 1 November 2012 how should management
entities deal with the duration adjustment?
Question 4 of the Q&A deals with the issue of duration adjustment for calculating net short positions in sovereign
debt.
We anticipate that further clarification may be provided by ESMA in due course.
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AIMA Guidance Note on the EU Short Selling Regulation
2. Calculation of net sovereign debt - "Netting correlated positions"
In Article 8(3) of the Delegated Acts Regulation, the language used appears to make it a mandatory requirement
to net long positions in sovereign debt which are highly correlated with a short position in sovereign debt, rather
than this being at the discretion of the entity concerned.
Q.2
Is there any discretion to net or not net highly correlated sovereign debt positions for the purposes
of the net short position calculation?
Although the wording within Article 8(3) of the Delegated Acts Regulation could be construed as creating a
mandatory obligation to net long and short positions in the debt of two different sovereign issuers where the
relevant debt is ‘highly correlated’, AIMA believes that it is unlikely that this is the intended effect of Article
8(3). In any event, even if this construction is correct, mandatory netting would only appear to apply where an
investor has actually carried out the correlation calculation and determined that the ‘high correlation’ test is
satisfied. There is no obligation under the provisions of the Delegated Acts Regulation to carry out a correlation
analysis. Therefore, if an investor has not, in practice, calculated whether there is a high correlation between
the sovereign debt of two different sovereign issuers, there would appear to be no obligation to net the positions
for the purposes of the net short position calculation.
3. Issues around cover and correlation
(a) Cover requirements for short sales of shares and sovereign debt
Q.3
Are futures captured within the scope of the 'cover' requirements for the purposes of the ban on
naked short sales of sovereign debt or shares, i.e., if you create a short position using bond futures,
would you be required to hold cover against that position?
No. Futures positions fall outside the short sale definition (see Article 2(1)(b)(iii) of the Regulation). Therefore,
the requirements to cover short sales of shares and EU sovereign debt found in Articles 12 and 13, respectively, of
the Regulation will not apply to futures positions.
(b) Issues regarding uncovered CDS
Q.4
Under Article 18(1)(a) of the Delegated Acts Regulation, the data point for the purposes of the
correlation tests for “covered” sovereign CDS is price whereas for disclosure purposes it is yield
(unless yield is an inappropriate comparator). Although not explicit in Article 18 of the Delegated
Acts Regulation, are price and yield interchangeable or is this discrepancy intentional and one would
be considered non-compliant if using yield to demonstrate correlation? For the purposes of Articles 8
of the Regulation (and Article 18) is the comparator for yield in reference to levels of or changes to
levels of yields?
The correlation tests in Article 18(1) are designed to ensure that a sensible approach is taken to demonstrating
that the assets and liabilities being hedged are correlated with the sovereign CDS position that has been entered
into. It is important to note that under Article 18(1)(b), the qualitative correlation test refers to "meaningful
correlation", which is deliberately broad language. The use of this language and the purpose of the correlation
test provisions are therefore not intended to restrict unnecessarily the metrics used to demonstrate correlation to
price, or even yield for that matter.
It is possible that other metrics, such as spreads, could be used to demonstrate the requisite correlation between
the exposure that required hedging and the particular sovereign CDS position that was entered into at the
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AIMA Guidance Note on the EU Short Selling Regulation
relevant time. Firms may, therefore, develop their own correlation criteria, as long as these criteria are
objectively justifiable.
Q.5
Article 15(1)(b) of the Delegated Acts Regulation provides that a sovereign CDS will not be
considered uncovered where it hedges a “parent holding company which owns or controls a
subsidiary operating in a different Member States” (sic). Presumably this implies that the parent
must be domiciled in the Union. By contrast, Article 15(2) provides that it will be permissible to
hedge a sovereign CDS with an appropriate European area index of sovereign bond CDS “where the
obligor of, or counterparty to, an asset or liability being hedged is a company which has operations
across the Union”. Does this latter provision require the obligor/counterparty to be domiciled in the
EU, or will it be permissible to use a sovereign CDS to hedge against a position in e.g., an Australian
company with significant operations in Europe?
The language in Article 15(2) of the Delegated Acts Regulation is ambiguous and does not expressly or impliedly
restrict the obligor/counterparty to being EU domiciled and would benefit from an ESMA view. (Note, however,
that AIMA anticipates that ESMA would confirm that an EU sovereign CDS could only be used to hedge exposures
to companies which are themselves domiciled in the EU - even where a non-EU domiciled company had significant
operations in the EU.)
Pending confirmation of a formal ESMA view, firms should consider taking their own legal advice as to whether
the absence of wording that requires or reasonably implies the need for EU domicile will allow them to use an
index of European or Euro area sovereign bond CDS.
Firms should take into account, however, whether the purposive intent of Article 15(2) would allow, for example,
the entering into an index of ‘peripheral’ Euro area country CDS to hedge an exposure to corporate bonds issued
by an Australian mining company which operates in the EU.
Q.6
On the issue of calculation of ‘cover’ for sovereign CDS and application of correlation tests, Articles
14 – 20 of the Delegated Acts Regulation indicate that such calculations should take place at the
level of each position. Would it, though, be possible to aggregate certain positions for the purposes
of these tests (e.g., at sub-portfolio level), if appropriate?
Calculations as to cover should be made on a position by position basis.
4. The definition of “Investment Strategy”, “Management activities” and “Management entity”
Q.7
In Article 12.2 (a) of the Delegated Acts Regulation, what does the concept of ‘Investment Strategy’
mean?
Ultimately, an Investment Strategy is being either long or short in a particular issuer (see Article 12(2) (a) of the
Delegated Acts Regulation and paragraph 67 of ESMA’s Final Report). Therefore, the calculation should be
conducted at the level of each individual fund or managed portfolio to determine if a net position is long or short.
Thus, the management entity would only aggregate the positions of the funds it manages which were net short in
the instrument. Any funds with net long positions would not be taken into account since they would be pursuing a
different (i.e., long) strategy.
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AIMA Guidance Note on the EU Short Selling Regulation
Q.8
In Article 12(2) (b) of the Delegated Acts Regulation, does the definition of “Management Activities”
only refer to mandates given by clients on a discretionary basis or does it also apply to nondiscretionary, i.e., client-directed/execution-only, mandates?
The definition of “Management Activities” only covers discretionary mandates. It would not include execution
only mandates or proprietary/trading accounts.
Q.9
Under the definition of “Management Entity” at Article 12(2) (c) of the Delegated Acts Regulation,
who is responsible for reporting positions if the investment decision has been delegated to a subadviser/third-party?
If the group or related sub-adviser is the entity making the investment decisions then the sub-adviser becomes
the management entity that needs to aggregate and report positions separately from the management entity that
has delegated the investment management authority (and, if the sub-adviser is also managing funds for another
entity, it should sum all the net short positions of the funds under its management). If this cannot be done
effectively due to either legal ambiguities or technology constraints, one possible option may be for positions to
be aggregated and reported for the management entity and the group or related sub-adviser together
consideration being given to make an appropriate disclosure to the regulators.
The initial investment manager only has the obligation to aggregate and report positions in respect of which it has
itself made the investment decision. If a fund or managed portfolio is co-managed by the investment manager and
a sub-advisor/third-party, the fund will have to be split when aggregating the positions.
By way of example:
Investment Manager 2
aggregation level
Investment Manager 1 aggregation level
Investment Manager 2
Sub advisor to IM1
Investment Manager 1
Managed
portfolio 1
Managed
portfolio 2
Fund 1
Fund 2
Fund 3
Fund 4
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AIMA Guidance Note on the EU Short Selling Regulation
5. Issues around the calculation and aggregation of positions
Q.10 Under Articles 5 and 6 of the Delegated Acts Regulation, if a fund has a position in an index
incorporating EU stocks then it will need to know the weighting of these stocks in the index in order
to be able to calculate a net short position. The weighting data is owned by the index providers and
is not available for free. Many funds have not needed to know this information so don’t currently
subscribe to this data service on Bloomberg. The cost of subscription can be great – what steps could
managers take to comply with the reporting obligation without incurring disproportionate cost,
bearing in mind ESMA’s view that ‘publicly available’ information as set out in Article 3(3) of the
Regulation should mean available free of charge?
Q.11 A number of firms may already subscribe/hold licences that enable them to have access to
composition of indices for portfolio management purposes. A concern is that regulators may take the
view that, if a firm already has access to the information (albeit for another purpose), it would be
expected to have regard to it for the purposes of calculating net short positions under the
Regulation. The issue is not so much around access, rather the systems development which would be
required to consume this information within the disclosure model. How pragmatic will regulators be
on this issue, i.e., could we take a view that certain indices are so broadly diversified that it is highly
unlikely that any short position would impact the calculation and, therefore, we can exclude these
products from the calculation?
It is unlikely that firms could use a de minimis or pragmatic approach. The FSA had sought to introduce such an
approach for indices as part of the ESMA proposals but was not successful on this point.
Question 3g of the Q&As reiterates that ‘publicly available information’ is information “which is easy to access on
the market operator’s or issuer’s website and which is obtainable free of charge”. While provision of the real
time composition of an index, basket or ETF is likely to be chargeable, the Q&A notes that there is no obligation
within the Regulation for a firm to obtain such information on a real time basis, but rather that market
participants “should strive to use the most recent publicly available information for look-through purposes”.
In addition, ESMA indicates that the phrase ‘acting reasonably’, as used in Article 3(3) of the Regulation, should
be taken to relate only to obtaining information about the composition of the index, basket of ETF rather than to
the manner in which an investor processes the information when undertaking his/her calculation of the net short
position.
Q.12 Under Article 12(3) of the Delegated Acts Regulation, how should positions be aggregated?
Article 10 of the Delegated Acts Regulation stipulates that a net delta adjusted position of each issuer is
calculated including all instruments listed in Part 1 of Annex I and using the methodology described in Part 1 of
Annex II. The position is calculated at a fund or a managed portfolio level by ‘Investment Strategies’ (as stated in
Q.7 above), whereby all funds with a net short position in an issuer would be considered in a ‘short Investment
Strategy’. Any funds with net long positions would not be taken into account since they would be pursuing a
different (i.e., long) strategy.
As a result, only ‘short Investment Strategies’ are to be included in the calculation and aggregation for short
selling disclosures. Positions are then aggregated at the Management Entity level - as stated in Q.9 above, the
Management Entity is the entity which makes the investment decision.
Positions that have been delegated to a Management Entity from a third party must be included in the
aggregation. Positions that have been delegated from a Management Entity to a third party must be excluded
from the aggregation.
If the aggregated net short position reaches or exceeds the relevant notification or disclosure threshold, a
disclosure report is required to be submitted to the relevant competent authority which has jurisdiction over the
issuer in question.
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AIMA Guidance Note on the EU Short Selling Regulation
For example:
Investment Manager 2 aggregated
level
Investment Manager 1 aggregated level
•
•
•
•
Investment Manager 1
Investment Manager 2
Sub advisor to IM1
Net short aggregated position -0.45%
Net short aggregated position -0.33%
Net Delta Positions are
calculated at Fund/
Managed Portfolio Level
short positions are
included in the
aggregation
Managed
portfolio 1
-0.05%
Managed
portfolio 2
-0.1%
Fund 1
-0.1%
Fund 2
-0.3%
Split..
-0.2% -0.1%
Fund 3
-0.15%
Fund 4
-0.08%
Net Delta Positions are
calculated at Fund/
Managed Portfolio Level.
Long positions are
excluded from the
aggregation
Managed
portfolio 3
+0.2%
Managed
portfolio 4
+0.1%
Fund 5
+0.1%
Fund 6
+0.35
Split...
+0.3% +0.05
Fund 7
+0.01%
Fund 8
+0.1%
6. Issues around reporting obligations under the Regulation
Q.13 How are companies supposed to report fund of funds? Is it expected that short positions held within
portfolios of hedge funds should be reported given the lack of transparency as to the underlying
holdings?
No. The fund of funds manager is not responsible for the underlying investment decisions in the hedge funds in
which it they invests. The fund of funds manager can reasonably expect the underlying hedge fund manager to
make relevant short selling disclosure reports on positions which is held within the underlying hedge fund.
This is a matter on which further clarification is being sought from ESMA.
Q.14(a) Where a portfolio manager is managing segregated portfolios on behalf of institutional investors,
does the obligation fall to the investment manager to report under the Regulation, which appears
to identify the investment manager as the entity responsible for reporting?
The Regulation requires the person who is exercising control over the relevant assets to make the report. Thus, if
the portfolio manager has discretion over the relevant issuer which it is managing on behalf of an institutional
investor (i.e., it is making the investment decisions on a particular issuer), then the manager will be responsible
for making any relevant short position disclosures, but only in respect of that portion of the portfolio over which
it has full discretion.
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AIMA Guidance Note on the EU Short Selling Regulation
Q.14(b) Where does the FSA expect firms to draw the reporting level entity where there are multiple
and/or complex sub-delegation arrangements in place? For instance, would it be at the level of
the entity contracting with the client to provide investment management services? Or would it be
the sub-adviser (which may be located in a third-country)?
Again, as stated in Q.9 above, the entity making the decision to invest in a particular issuer has the obligation to
make any relevant short position disclosures in respect of that portion of the portfolio over which it has full
discretion.
The reference within Table 1 of Annex 1 of the First RTS Regulation to ‘position holder’ in a management
context, means the portfolio manager, while the reference to ‘reporting person’ merely means an individual to
contact for queries. As a result, there is no need to name underlying accounts/funds.
Thus, if Fund A appoints IM B LLC (a US registered company) which, in turn, appoints IM C Ltd (a UK registered
company) as sub-advisor, then it is IM C Ltd which will be responsible for the reporting of any positions that IM C
Ltd executes that result in a reportable short position.
Q.15 Specifically, how does a manager report significant net short positions and to whom (the latter more
for the public disclosure obligation)?
AIMA’s understanding is that such a report would need to be made in either English or the language of the
jurisdiction of the competent authority to which the report must be made.
The short selling disclosure reports made under Article 5(1), Article 7(1) or Article 8 of the Regulation should
contain the information specified in Table 1 of Annex I of the First RTS Regulation.
Within the UK, both private notification to the FSA and public disclosure will be made on a centralised website,
using the relevant form contained within the First RTS Regulation. The actual mechanism for making the report
will be made known by the FSA before 1 November 2012.
ESMA has also provided a table listing the links to central websites operated or supervised by relevant competent
authorities (see Annex 2 (Notification and disclosure requirements in Member States) to this Guidance Note).
Q.16 What level of record-keeping is expected to be required of investment managers that rely on prime
brokers to do their reporting for them where the need to demonstrate a hold or locate exists? Can
this be delegated to the broker such that confirmation back from the broker is sufficient?
Confirmations from the broker will be required by the manager. Delegation of the reporting obligation to a prime
broker is permissible, provided that the prime broker is able, on demand, to provide copies of the hold or locate
confirmations to the person who took a relevant position.
Q.17 On 1 November 2012, will all existing net short positions above the relevant thresholds need to be
notified or disclosed (as relevant) or does the transparency obligation take effect only for relevant
positions which come into being or which cross a threshold following introduction of the regime?
This issue is covered by the answer to Question 2c within the Q&A’s.
The fact that a notification has already occurred under an existing domestic regime does not discharge the
responsibility to report under the new EU regime when it comes into force. Thus, all positions existing at midnight
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AIMA Guidance Note on the EU Short Selling Regulation
on 1 November 2012 that require disclosing regardless of the fact that they may have already been disclosed
under the pre-existing domestic regime will have to be disclosed under the Regulation and will need to be
notified or disclosed again on 2 November 2012. (See the Q&As in respect of those Member States in which 1
November 2012 is not a trading day.)
7. Miscellaneous issues under the Regulation
Q.18 For sovereign CDS positions opened on or after 25 March 2012, do FSA consider the baseline for the
purposes of measuring compliance the trade date or can the observation date be a point in time
prior to 1 November 2012 that is determined at the entity’s discretion?
For sovereign CDS positions entered into on or after 25 March 2012 and before 1 November 2012, AIMA considers
the Regulation requirements entering into effect on 1 November 2012 will be fulfilled if these were met at the
time the position was opened – i.e., that the position was correlated at the time of entry into the CDS and the
position has remained proportionate.
The holder should ensure that the sovereign CDS position remains proportionate at all times, leaving aside market
fluctuations. The position will be considered to be covered even though, had position been newly opened on 1
November 2012, the correlation requirements would no longer be met.
In respect of the proportionality test, the reference point will be the time at which the relevant transaction was
entered into. Thus, the manager would have to take market fluctuations into account in the case that the
existing sovereign CDS position was used to hedge new assets/liabilities.
Q.19 What (if any) consequences arise if a short sale is entered into without there being an initial
intention of the short-seller to close the position the same day i.e., no same-day notification, but
then is subsequently closed out later in the day due to market conditions or other considerations?
We presume none since, at the point the trade was entered into, it was not considered an intra-day
short sale.
AIMA's view is that where a short sale is entered into without there being an initial intention of the short-seller to
close the position the same day (i.e., no same-day notification) but then is subsequently closed out later in the
day due to market conditions or other considerations, no consequences will arise. This is based on the premise
that, at the point the trade was entered into, it was not considered an intra-day short sale.
Q.20 The ESMA list of total bonds in issue in the guidelines is from 2010. Is it intended that an updated
version will be issued in advance of the rules coming into force?
On 10 October 2012, ESMA published a list of the net short position thresholds for sovereign issuers (see Section E
– Other Useful Resources below for the link), which list includes, for each sovereign issuer, the amount of
outstanding debt (in € million), duration adjusted. AIMA understands that ESMA has gathered this information on
the basis of each Member State’s total debt at issue as of 31 June 2012.
D. The extra-territorial scope of the Regulation
The question as to whether the provisions of the Regulation, either in whole or in part, apply to persons situated
outside the EEA is a fundamental one and there has been a lack of clarity on this issue within the legislative texts
themselves.
A short summary of AIMA’s legal analysis is as follows:
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AIMA Guidance Note on the EU Short Selling Regulation
•
•
•
•
EU Regulations passed by the legislative institutions of the European Union under Article 114 of the Treaty on
the Functioning of the European Union will bind persons domiciled and established within the European
Union, but will not apply to persons domiciled and established outside the European Union unless expressly
stated otherwise in the relevant EU Regulation;
Article 10 of the Regulation explicitly states that the transparency requirements contained in Articles 5 to 8
of the Regulation “apply to natural or legal persons domiciled or established within or outside the Union”;
it is, therefore, clear that the co-legislators intended that persons domiciled or established outside the
European Union should be required to comply with the these transparency requirements;
on the other hand, the Regulation makes no attempt to apply the restrictions on short selling of shares and
sovereign debt or on the taking of uncovered positions in CDS (Articles 12, 13 and 14 of the Regulation) to
persons domiciled or established outside the European Union.
AIMA has sought clarification on this issue from both ESMA and the Commission. We have been informed that the
informal opinion of EU legal services is that the Regulation was intended to have, and so has, global applicability
in respect of both the transparency requirements and the restrictions it imposes. This position is reflected in
ESMA’s answer to Question 1a in the Q&As.
Whether or not the Commission’s analysis is correct, AIMA members should be aware that, unless and until such
view is successfully challenged in court it is likely that it will be this view upon which any enforcement actions
will be based.
E.
Other useful resources
AIMA members may find the following resources helpful:
(a) ESMA
Delegated Acts Regulation
http://www.aima.org/en/document-summary/index.cfm/docid/03C8F385C06C-401A-849AFCADCD6DEDF7
Final Report (Delegated Acts)
http://www.esma.europa.eu/content/ESMAs-Technical-Advice
possible-delegated-acts-short-selling-and-certain-aspects-CDS
Final Report (Technical standards)
http://www.esma.europa.eu/content/Draft-technical-standards-RegulationEU-No-2362012-European-Parliament-and-Council-short-sel
First RTS Regulation
http://ec.europa.eu/internal_market/securities/docs/short_selling/201206
29-regulatory_en.pdf
ITS Regulation
http://ec.europa.eu/internal_market/securities/docs/short_selling/201206
29-technical-standards_en.pdf
List of exempted shares
http://www.esma.europa.eu/page/List-exempted-shares
List of net short
position
thresholds for sovereign issuers
http://www.esma.europa.eu/page/Net-short-position-notificationthresholds-sovereign-issuers
Main short selling page
http://www.esma.europa.eu/page/Short-selling
Q&As:
(i)
Original
September 2012
version
–
13
http://www.esma.europa.eu/content/Implementation-Regulation-shortselling-and-certain-aspects-credit-default-swaps
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AIMA Guidance Note on the EU Short Selling Regulation
(ii)
2012
First update - 10 October
www.esma.europa.eu/content/QA-Implementation-Regulation-short-sellingand-certain-aspects-credit-default-swaps-1st-upda
Regulation
http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2012:086:0001:0024:en:P
DF
Second RTS Regulation
http://www.aima.org/en/document-summary/index.cfm/docid/B9EE160691B0-41C9-9A4C963A5E12C00E
(b) UK Financial Services Authority
FSA market making exemptions
page
www.fsa.gov.uk/about/what/international/short-selling/market-makerexemptions
FSA MarketWatch 42
www.fsa.gov.uk/pubs/newsletters/mw_newsletter42.pdf
FSA Factsheet for short selling
http://www.fsa.gov.uk/static/pubs/international/factsheet-shortselling.pdf
November 2012
© The Alternative Investment Management Association Limited (AIMA) 2012
14
AIMA Guidance Note on the EU Short Selling Regulation
Annex 1
(a)
The legislative texts comprising the Short Selling Regulation
On 25 March 2012, the Regulation formally came into force, a day after its publication in the Official Journal.
The Regulation introduces:
•
•
•
requirements for reporting significant net short positions in shares and sovereign debt, namely, a two-tier
disclosure regime consisting of:
- private disclosure to national regulatory authorities of net short positions for sovereign debt and sovereign
credit default swaps (CDS), as well as shares at certain thresholds (0.2%); and
public disclosure for shares once a higher (0.5%) threshold has been passed (0.5%);
conditions for undertaking uncovered short selling and imposes restrictions on entering into uncovered
sovereign CDS positions;
various emergency powers exercisable by national regulatory authorities and ESMA to curb short selling.
The Regulation is to be implemented across the EEA on 1 November 2012, with Member States having only limited
scope for extending their existing national regimes beyond this date.
Level 2 provisions are intended to give greater clarity and guidance on a number of critical issues within the
Regulation. In the case of the Regulation, and following advice from ESMA, on 29 June 2012 and 5 July 2012, the
European Commission (the Commission) adopted the following delegated Regulations:
•
The Delegated Acts Regulation, dealing with:
- definitions of when a natural or legal person (a) ‘owns’ a financial instrument and (b) ‘holds’ a share or
debt instrument for the purposes of defining a short sale under the Regulation;
- calculation of net short positions in shares and sovereign debt under Article 4(2) of the Regulation;
- calculation of the net short position where long and short positions are held by different entities within a
group or where fund managers hold separate funds;
- definition of what constitutes coverage in respect of sovereign credit default swaps (CDS) including
 the degree of correlation required between the hedged assets or liabilities and the relevant sovereign
debt; and
 the conditions in which it is permitted to hedge assets or liabilities located in one Member State
through a sovereign CDS referencing a different Member State;
- notification thresholds for sovereign debt net short positions;
- specification of the liquidity threshold for suspending restrictions on short sales of sovereign debt;
- specification of what constitutes a ‘significant fall in value’ for given classes of financial instruments other
than liquid shares, thereby permitting competent authorities to prohibit, restrict short selling or otherwise
limit transactions in that class of instrument; and
- specification of what constitutes ‘adverse events or developments’ under Articles 18 to 21 of the
Regulation under which competent authorities can call upon enhanced powers of intervention.
•
The First RTS Regulation, dealing with:
-
•
•
notification and disclosure requirements with regard to net short positions;
the method for calculating turnover to determine which shares are exempted; and
details of the information to be provided to ESMA by competent authorities with regard to net short
positions.
The Second RTS Regulation, dealing with the method of calculation of the fall in value for liquid shares and
other financial instruments.
The ITS Regulation, dealing with:
- the means for public disclosure of net short positions in shares;
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AIMA Guidance Note on the EU Short Selling Regulation
the types of agreements, arrangements and measures adequate to ensure that shares or sovereign debt
instruments are available for settlement;
the dates and period by which to determine the principal venue for a share; and
the format of the information to be provided to ESMA by competent authorities in relation to net short
positions.
-
(b)
AIMA’s Summaries of the legislative texts
Level 1
AIMA’s Summary of the Regulation can be found here.
Level 2
AIMA’s Summary of the Delegated Acts Regulation can be found here.
AIMA’s Summary of the First RTS Regulation, Second RTS Regulation and ITS Regulation can be found here.
November 2012
© The Alternative Investment Management Association Limited (AIMA) 2012
16
AIMA Guidance Note on the EU Short Selling Regulation
Annex 2
Notification and disclosure requirements in Member States
Articles 5 to 11 of the Regulation set out a transparency regime, whereby holders of significant net short positions
in shares and sovereign debt as well as uncovered positions in sovereign CDS, must notify these positions to the
relevant competent authority or, as appropriate, publicly disclose them. Information to be publicly disclosed is
to be posted on a central website operated or supervised by the relevant competent authority in each Member
State.
ESMA has now published lists of links to central websites both for private notification and public disclosure. This
can be found here and here.
The content of the information to be notified to the competent authority is specified in the First RTS Regulation.
However, it is for each competent authority to determine the mechanism by which this information is actually
notified to it (e.g., by email, direct posting, fax, online notification etc.).
AIMA has made enquiry of the situation in a number of Member States and sets out the following on a ‘best
efforts’ basis. Members are, however, encouraged to seek appropriate professional advice in respect of specific
notifications or to check the relevant competent authority’s website (click on the name of each authority below
for a link to its central website).
Austria (Financial Market Authority)
Guidance (including an English translation) on short selling notifications has been produced by the Austrian
Financial Market Authority (FMA) on their short selling website. This can be found here. The FMA implemented a
web based portal for registering and reporting net short positions on Austrian shares, sovereign debts and CDS on
Austrian sovereigns. This can be found here. Those wishing to use the portal will first need to register as an
account holder. The registration form can be found here.
Belgium (Financial Services and Markets Authority)
Notifications to the Financial Services and Markets Authority (FSMA) may be made by post, addressed to:
FSMA,
Surveillance of Financial Markets,
attn: Mr Erwin Zeerards,
rue du Congrès 12-14,
1000 Brussels.
Position holders may also submit notifications to the FSMA by fax to: +32 2 220 59 03.
Notifications may be submitted by email to info.fin@fsma.be but, in such cases these should also be confirmed by
post or by fax.
Bulgaria (The Financial Supervision Commission)
The Financial Supervisions Commission’s website has a specific short selling section. This can be found here.
Position holders should make their notifications of net short positions by email to govdebt@minfin.bg. Notification
templates can be found here.
Czech Republic (Czech National Bank)
The Czech National Bank’s website has a specific short selling section. This can be found here. Position holders
should make their notifications of net short positions using the ‘Information on Short Positions’ application. This
can be found here.
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AIMA Guidance Note on the EU Short Selling Regulation
Denmark (Finanstilsynet)
The Finanstilsynet (FSA) provides additional information on the regulation of short selling and certain aspects of
credit default swaps and how reporting of short positions is implemented in Denmark on its website. This can be
found here. Notifications of net short positions should be made through the ‘FSA Database’. This can be found
here. First time users of the FSA Database should register for a username and password here.
Finland (Finanssivalvonta)
The Finanssivalvonta’s (FSA) website has a specific short selling section. This can be found here. Notifications of
net short positions will be made by excel spreadsheet and sent by email to Shortselling@finanssivalvonta.fi. The
excel spreadsheet and instructions for use are available here and here. When sending a notification an encrypted
email connection is preferred – this will be available from the Finanssivalvonta website. Further information can
be found here.
France (Autorité des marchés financiers)
Notifications of net short positions should be made to the Autorité des marchés financiers (AMF) using its webbased portal, ‘ONDE’. Position holders must first register for an account by sending an email to the relevant email
address provided by the AMF. Access to the ONDE notifications system and registrations for ONDE can be found
here. The user guide for using ONDE can be found here.
Germany (Federal Financial Supervisory Authority)
The Federal Financial Supervisory Authority’s (BaFin) website has a specific short selling section. This can be
found here. Notifications to BaFin should be made using its web-based portal, MVP-Portal. This can be found here.
The relevant notification form to submit via MVP-Portal can be found here. Position holders wishing to register for
MVP-Portal may do so here. Public disclosures will have to be initiated via the website of the Federal Gazette
(Bundesanzeiger). A useful guide in how to do this can be found here.
Greece (the Hellenic Capital Market Commission)
Notifications of significant net short positions in shares admitted to trading on the Athens Exchange and
significant net short positions in Greek sovereign debt should be sent to the Hellenic Capital Market Commission
(HCMC) to the following e-mail address shortselling.hcmc@cmc.gov.gr and to fax no +(30) 210 3377108, for the
attention of Mr. Athanasios Champeos. The notification forms to be used can be found here.
The HCMC passed emergency measures on short selling and certain aspects of credit default swaps. The measure
entered into force on 1 November 2012 at 8:30:00 hours (CET) and to be applicable till 24:00:00 (CET) on 31
January 2013. The measures consist of a temporary prohibition on short selling of shares and units of Exchange
Traded Funds admitted to trading on the Athens Exchange irrespective of the venue where the transaction is
executed. The short selling temporary prohibition includes sales which are covered with subsequent intraday
purchases. The short selling temporary prohibition applies to all depository receipts representing shares admitted
to trading on the Athens Exchange. The ESMA opinion in respect of the emergency measures can be found here.
Hungary (Hungarian Financial Supervisory Authority)
The Hungarian Financial Supervisory Authority (HFSA) has published a web page on short selling. This can be found
here. Position holders should notify the HFSA through the web based application, ‘SSR System’. This can be found
here. First time users should register here.
Ireland (Central Bank of Ireland)
The Central Bank of Ireland has published a web page detailing useful information on notification of net short
positions. This can be found here. Position holders should notify the CBI using the appropriate notification form.
The various notification forms can be found here. The relevant time for calculation of the net short position is
midnight at the end of the trading day on which the natural or legal person holds the relevant position. The
completed notification form should be submitted to shortselling@centralbank.ie by 15.30 on the following trading
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AIMA Guidance Note on the EU Short Selling Regulation
day. The notification form must be submitted in Excel format. A valid identifier code must be included on the
notification form.
In respect of positions necessitating public disclosure, the CBI will publish details of these net short positions on
the CBI’s website. Position holders should complete the “Data Publication” section of the notification form to
indicate that public disclosure is required.
A position holder must register with the CBI prior to submitting its first notification. To register, the position
holder should complete the registration form and submit a signed, scanned copy of the form by email to
shortselling@centralbank.ie together with any applicable documentation at least two business days prior to
submission of its first notification. The registration form can be found here.
Italy (Commissione Nazionale per le Società e la Borsa)
The Banca d'Italia (BI) and the Commissione Nazionale per le Società e la Borsa (CONSOB) are the competent
authorities to receive net short position notifications. The BI has published a webpage providing information on
the notification of net short positions in sovereign debt. This can be found here. The CONSOB has published a
webpage providing further information on information on the notification of net short positions in shares. This can
be found here.
Notifications in respect of significant net short positions in sovereign debt and applications for exemptions for
market makers and authorised primary dealers in sovereign debt should be made to the BI using its web based
application, ‘INFOSTAT’. This can be found here. First time users will be required to register with the BI here.
Notifications in respect of significant net short positions in shares and applications for exemptions for market
makers and authorised primary dealers in shares should be made to the CONSOB using its web based application,
the ‘System’. This can be found here. First time users will be required to register with the CONSOB here.
Latvia (Financial and Capital Market Commission)
Notifications should be made using the Financial and Capital Market Commission’s (FKTK) website reporting
platform, ‘Short Position Reporting System’. This can be found here. First time users are required to register with
the FKTK. Instruction on how to register can be found on the “How to register?” link here. Reference is made to
Regulation No.224 "On the procedure for reporting short positions or uncovered positions in financial instruments",
issued by the FKTK on 25 October 2012. The English translation to this regulation can be found here.
Lithuania (Bank of Lithuania)
The Bank of Lithuania (BL) has published a webpage providing information on the notification of net short
positions. This can be found here. Notification of net short positions should be made to the BL at da...@lb.lt. The
notification should be made using the form provided in Annexes of the First RTS Regulation. Notifications should
be made by 15.30 on the next trading day after the net short position was created.
Luxembourg (Commission de Surveillance du Secteur Financier)
The Commission de Surveillance du Secteur Financier (CSSF) has published a webpage providing information on
the notification of net short positions. This can be found here. Notifications should be made using the CSSF’s
website reporting platform, ‘CSSF Short Selling Platform’. This can be found here. First time users are required to
register with the CSSF here.
Malta (Malta Financial Services Authority)
The Malta Financial Services Authority (MFSA) has published a webpage providing information on the notification
of net short positions. This can be found here. The MFSA has produced a notification form which can be found
here. This form should be sent by way of email to nfenech@mfsa.com.mt and egrech@mfsa.com.mt. The MFSA
have informed us that they intend to set up a specific email address for short selling notifications which they will
publish on their short selling webpage in due course.
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AIMA Guidance Note on the EU Short Selling Regulation
The Netherlands (Authority for the Financial Markets)
The Authority for the Financial Markets (AFM) has published a section on its website for the Regulations. This can
be found here. Position holders should make the relevant notifications using the appropriate form. These can be
found here. The appropriate form must be completed, signed and sent by fax or e-mail (using a scanned version
of the form) as well as by post to:
Netherlands Authority for the Financial Markets (AFM)
Disclosure & Registration Department
PO Box 11723
1001 GS Amsterdam
Fax number: +31 (0)20 - 797 3822
E-mail: melden@afm.nl
Note - on 13 November 2012 the Dutch government introduced a notification requirement in relation to gross
short positions on top of the existing net short position notification rules under the Regulation. Position holders
will be obliged to notify the AFM when their gross short position reaches, exceeds or falls below 3%, 5%, 10%, 15%,
20%, 25%, 30%, 40%, 50%, 60%, 75% and 95%. The new disclosure obligation is envisaged to come into force on 01
January 2013. The Dutch government has promised to provide additional clarifications on the new regime in
further regulations.
Poland (Komisja Nadzoru Finansowego)
Notifications should be provided on paper addressed to the Polish Financial Supervision Authority as follows:
For the attention of: DNO pozycje krótkie
Komisja Nadzoru Finansowego
Plac Powstańców Warszawy 1
00-950 Warszawa
Notifications of short positions in shares must follow the content and format set out in the Annexes to the First
RTS Regulation.
Portugal (Portuguese Securities Market Commission)
The Portuguese Securities Market Commission (CMVM) has published a webpage providing information on the
notification of net short positions. This can be found here. The CMVM has produced a notification form which
should be used when making the notification of net short positions. This can found here. This should then be sent
to cmvm@cmvm.pt. More detailed information on the notification process can be found here.
Romania (Comisia Naţională a Valorilor Mobiliare/National Securities Commission)
The Comisia Naţională a Valorilor Mobiliare (CNMV) has published a webpage providing information on the
notification of net short positions. This can be found here. The CNVM has provided a table containing links to the
notification forms which should be used when making the notification of net short positions as well the form
required to be filled in before a position holder makes his first notification. This table can found here. The
relevant notification form/registration form should then be sent to cmvm@cmvm.pt. Further details on the
notification/registration process can be found here.
Slovakia (Národná banka Slovenska/The Central Bank of Slovak Republic)
The Národná banka Slovenska (NBS) has published a webpage providing information on the notification of net
short positions. This can be found here. The NBS has produced a notification form which should be used when
making the notification of net short positions. This can found here. This should then be sent to the NBS on
shortselling@nbs.sk. Notifications should be made by 15.30 on the next trading day after the net short position
was created.
Slovenia (Securities Market Agency)
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AIMA Guidance Note on the EU Short Selling Regulation
The Securities Market Agency (SMA) has published a webpage providing information on the notification of net
short positions. This can be found here. The notification of the net short positions should be made using the
relevant notification form issued by the SMA. These are as follows:
•
•
•
•
Form
Form
Form
Form
for notification of significant net short positions in shares – This can be found here.
for public disclosure of significant net short positions in shares – This can be found here.
for notification of significant net short positions in sovereign debt – This can be found here.
for notification of uncovered positions in sovereign credit default swaps – This can be found here.
The notification of the net short positions on shares, sovereign debt and uncovered sovereign credit default
swaps may be submitted either in writing to the Securities Market Agency, Poljanski nasip 6, 1000 Ljubljana,
Slovenia and by fax no. + 386 1 280 04 30 or by e-mail on info@atvp.si.
Spain (Comisión Nacional del Mercado de Valores)
On 24 October 2012, the Comisión Nacional del Mercado de Valores (CNMV) announced its data reporting
mechanism for the notification of net short positions. This data reporting mechanism can be found here. Position
holders making their first notification should first register for such service. This can be done here. Various forms
for the notification and cancellation of net short positions have been made available by the CNMV. These can be
found here.
The CNMV passed emergency measures which consist of a ban on the performance, by any natural or legal person,
of transactions which create a financial instrument or relates to a financial instrument where the effect or one of
the effects of the transaction is to confer a financial advantage on such natural or legal person in the event of a
decline in the price or value of shares listed on a Spanish official secondary market for which the CNMV is
considered the competent authority. The measure entered into force on 1 November 2012 at 8:30:00 hours (CET)
and is applicable until 24:00:00 (CET) on 31 January 2013. The ESMA opinion in respect of the emergency
measures can be found here.
Sweden (Finansinspektionen)
The Swedish Financial Supervisory Authority, Finansinspektionen (FI), has published a webpage providing
information on the notification of net short positions. This can be found here. The notification of the net short
positions should be made using the notification form issued by the FI. This can be found here. The notification
should be sent to the FI at blankning@fi.se and shall be made no later than 15:30 on the trading day after the
position arose.
The FI Finansinspektionen plans to introduce a web-based system for notification. However, it is, as yet, unclear
when this system will be put in place.
United Kingdom (Financial Services Authority)
The Financial Services Authority (FSA) has published a webpage on short selling. This can be found here. The
relevant forms for notifying and disclosing net short positions under the new Short Selling regime can be found as
follows:
•
•
•
•
Form
Form
Form
Form
for the
for the
for the
for the
public disclosure of shares – This can be found here;
private notification of shares – This can be found here;
private notification of sovereign debt – This can be found here; and
private notification of uncovered position in sovereign CDS – This can be found here.
In the case of private notifications, position holders should send the relevant notification form by way of email to
the FSA at privatedisclosureSSR@fsa.gov.uk. In the case of public disclosures, position holders should send the
notification form by way of email to the FSA at publicdisclosureSSR@fsa.gov.uk.
November 2012
© The Alternative Investment Management Association Limited (AIMA) 2012
21