EU short selling reporting threshold to remain lowered

The reduced threshold for reporting short positions in the EU will remain until 19 December the European Securities and Markets Authority (ESMA) has confirmed as fears of a second wave of COVID-19 and further market disruption mount.

The EU’s Short Selling Regulation requires the holders of net short positions in shares traded in its markets to notify the relevant national competent authority (NCA) if the position reaches or exceeds 0.2 percent of the issued share capital.

However, the EU financial regulator reduced this threshold to 0.1 percent as of 17 March to reflect the need for greater oversight of its markets during the period of market turmoil brought on by the COVID-19 pandemic.

This threshold was initially expected to revert to its original level in June but ESMA extended the period until 17 September.

Today’s decision means the lower reporting bar will now remain in place for a further three months.

“The COVID-19 pandemic continues to have serious adverse effects on the real economy in the EU with any outlook for a future recovery remaining uncertain,” ESMA explains. “While EU financial markets have partially recovered, the situation remains unpredictable particularly in the context of a possible second wave of infections.

The regulator adds that the greater market transparency the lower threshold affords will gift NCAs the ability to “deal with any threats to market integrity, orderly functioning of markets and financial stability at an early stage”.

ESMA says the renewal will also allow it to “address such threats in case of signs of exacerbated market stress”.