ESMA publishes its final report on the review of the Short Selling Regulation

04 April 2022

The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, has today published its Final Report on the review of the Short Selling Regulation (SSR). The Final Report proposes targeted amendments to improve its operation, focused on clarifying the procedures for the issuance of short and long-term bans, ESMA’s intervention powers, the prohibition of naked short selling and the calculation of net short positions (NSPs) and their publication.

In its Final Report, ESMA takes stock of the experience gathered in the aftermath of the COVID-19 outbreak. This relates to the emergency measures adopted by relevant competent authorities (RCAs) and ESMA’s temporary lowering of the notification thresholds for NSPs to promote an EU-wide monitoring of short selling activity.

ESMA has also considered, in light of the episodes of high volatility which took place in the US markets and elsewhere in respect of the so-called meme stocks, the possibility of similar phenomena developing in EU markets and re-assessed the SSR provisions about uncovered short selling.

The Final Report focuses on three main areas:

• An empirical analysis of the impacts of the emergency measures adopted during the COVID-19 crisis. ESMA proposes amendments to the rules for RCAs to issue long-term and short-term bans and for ESMA to adopt intervention powers. Those amendments aim at ensuring that the relevant procedures are clear, streamlined and sufficiently flexible for RCAs and ESMA to effectively tackle emergency situations;
• A review of the current framework for the calculation of net short positions (NSPs), the list of exempted shares and the so called locate rule to be met when short selling. In respect to this latter, it is proposed to enhance the existing rules about uncovered short sales by introducing record keeping requirements and a degree of harmonisation of sanctions; and
• An assessment of the framework for transparency and publication of NSPs, also considering the recent market events. ESMA proposes the introduction of an ESMA centralised system for publication and disclosure to the public of NSPs and an EU-wide obligation for RCAs to periodically publish aggregated NSPs per issuer, integrating all individual positions reaching or exceeding the notification and the publication thresholds.

Next steps

ESMA has submitted the Final Report to the European Commission (EC) and is ready to provide technical guidance should the EC decide to proceed with a review of the SSR.