ESMA backs short selling bans
18 March 2020 Paris
Image: Shutterstock
The European Securities and Markets Authority (ESMA) has endorsed the decision of market regulators to impose comprehensive and lengthy bans on short selling to protect equities markets left in disarray by the coronavirus’ major disruption of global economies.
The EU market watchdog has today issued an ‘official opinion’ agreeing to an emergency three-month short selling prohibition by Italy’s Commissione Nazionale per le Società e la Borsa (CONSOB), and the one-month bans opted for by France’s Autorité des marchés financiers (AMF) and Spain’s Comisión Nacional del Mercado de Valores (CNMV).
The bans are brought about by powers given to national competent authorities under the EU Short Selling Regulation.
In all three cases, the lockdown applies to all transactions which might constitute or increase net short positions on all shares on trading venues or over the counter.
Crucially, the latest bans go further than the one-day circuit breakers applied by all three countries earlier in the week by including all related instruments relevant for the calculation of the net short position.
The measures do not apply to index-related instruments if the restricted shares represent less than 20 percent of the index weight.
ESMA clarifies that this means the bans apply to index-related instruments only if the restricted shares represent 20 percent or more of the index weight.
Market making activities are also exempt.
The freeze began in Italy and France with the opening of today’s trading session and will remain in place until the end of trading on 18 June and 18 April respectively.
CNMV’s ban came into effect yesterday and will be repealed on 17 April.
All three regulators say they will review the time frames if the situation improves significantly in the short term.
In a statement on the ban, CONSOB says the radical measures were takes after the Italian main index (the FTSE MIB) fell from 20,799 to 14,894 between 6-12 March, representing an overall decrease of 28.39 percent.
Over the same period, the regulator notes that net short positions reported in Italian shares was up 22.35 percent. CONSOB further explains that as net short positions as a result of market making activities are not reported, the real figure of net short positions is much greater.
Meanwhile, in France, following the outbreak of the COVID-19 pandemic, French stocks were subject to severe downward price movements and high price volatility, and the French main index (the CAC 40) decreased by 27.2 percent between 2-16 March.
In its official opinion, ESMA says it considers that the observed increase in net short positions in the last days “may further exacerbate the downward price spirals, thereby further weakening market confidence” in European markets.
The authority “therefore agrees that the threats to market confidence on the French market amount to serious threats”.
The EU market watchdog has today issued an ‘official opinion’ agreeing to an emergency three-month short selling prohibition by Italy’s Commissione Nazionale per le Società e la Borsa (CONSOB), and the one-month bans opted for by France’s Autorité des marchés financiers (AMF) and Spain’s Comisión Nacional del Mercado de Valores (CNMV).
The bans are brought about by powers given to national competent authorities under the EU Short Selling Regulation.
In all three cases, the lockdown applies to all transactions which might constitute or increase net short positions on all shares on trading venues or over the counter.
Crucially, the latest bans go further than the one-day circuit breakers applied by all three countries earlier in the week by including all related instruments relevant for the calculation of the net short position.
The measures do not apply to index-related instruments if the restricted shares represent less than 20 percent of the index weight.
ESMA clarifies that this means the bans apply to index-related instruments only if the restricted shares represent 20 percent or more of the index weight.
Market making activities are also exempt.
The freeze began in Italy and France with the opening of today’s trading session and will remain in place until the end of trading on 18 June and 18 April respectively.
CNMV’s ban came into effect yesterday and will be repealed on 17 April.
All three regulators say they will review the time frames if the situation improves significantly in the short term.
In a statement on the ban, CONSOB says the radical measures were takes after the Italian main index (the FTSE MIB) fell from 20,799 to 14,894 between 6-12 March, representing an overall decrease of 28.39 percent.
Over the same period, the regulator notes that net short positions reported in Italian shares was up 22.35 percent. CONSOB further explains that as net short positions as a result of market making activities are not reported, the real figure of net short positions is much greater.
Meanwhile, in France, following the outbreak of the COVID-19 pandemic, French stocks were subject to severe downward price movements and high price volatility, and the French main index (the CAC 40) decreased by 27.2 percent between 2-16 March.
In its official opinion, ESMA says it considers that the observed increase in net short positions in the last days “may further exacerbate the downward price spirals, thereby further weakening market confidence” in European markets.
The authority “therefore agrees that the threats to market confidence on the French market amount to serious threats”.
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