Q&A Measure concerning short selling

De meestgestelde vragen over de AFM maatregel inzake short selling d.d. 1 juni 2009 (Engels).

1. Is this FAQ additional to the FAQ previously issued by the AFM in relation to this topic?
No. This is a new FAQ which replaces any previously issued FAQ by the AFM in relation to this topic (latest version was dated 24 February 2009).

2. Is this FAQ different from the FAQ issued by the FSA in relation to this topic?
Yes.

General

3. At what time does the new short selling disclosure regime come into force?
The provisions governing disclosure of short selling positions in financial companies come into effect on Monday 1 June 2009.

4. Are there any exemptions to these new measures?
Market Makers are exempt from the new short selling disclosure regime. The term Market Maker is not linked to the Euronext Rulebook. Our indicative view for the purposes of this instrument on market making is as follows:
A Market Maker is an entity that, ordinarily as part of their business, deals as principal in equities and/or derivatives (whether OTC, exchange-traded or on an MTF) in a way that ordinarily has the effect of providing liquidity on a regular basis to the market on both bid and offer sides of the market in comparable size. Trading in circumstances other than genuinely for the provision of liquidity is not exempt.
This exemption covers Market Makers only when, in the particular circumstances of each transaction, they are acting in that capacity. Market Makers are afforded a certain level of flexibility in anticipating sales as long as this activity is genuine market making in line with its existing general levels of business. Consequently, we would not expect Market Makers to hold significant short positions, other than for brief periods. Proprietary trading strategies where the main intention is to create a short position are not Market Makers and are not exempt. Registration as a Market Maker with an exchange or trading platform is not relevant for the purposes of this definition.

5. What will be the consequences of non-compliance with the new measures?
The competent authorities could take enforcement actions in case of non-compliance.

6. In the case of investment managers who act on behalf of clients, to whom do the short selling disclosure measures apply?
Non-discretionary
Where an investment manager manages on a non-discretionary basis, the disclosure requirements apply to the client. The investment manager may make a net short position disclosure on behalf of its client, but this disclosure must clearly identify that it is the client who holds the disclosable position.
Discretionary
The disclosure obligation applies at the level of both the entity to which the prohibition applies and at the level of the investment manager. The investment manager may make a net short position disclosure on behalf of its client. In respect of itself, the investment manager is required to disclose its aggregate net short position across all of the funds it manages on a discretionary basis. Where a disclosure by an investment manager is the same as that being made for its client/fund/sub-fund, it is permitted to make a single disclosure provided that the disclosure makes it clear that it applies to both parties.

7. How do the short selling disclosure requirements apply across different trading desks?
If trading desks within a firm are housed within the same legal entity, the aggregate position of the legal entity (across all desks holding positions in financial companies) would be expected to apply for these purposes, excluding positions taken under the Market Maker exemption.

Disclosure requirements

8. When calculating a net short position should financial instruments be accounted for on a notional basis or a delta adjusted basis?
Any financial instruments should be accounted for on a delta adjusted basis.

9. What does “economisch belang gerelateerd aan het totaal geplaatst kapitaal van de financiële onderneming” (economic exposure in the issued share capital of a company) mean?
It means any instrument (contracts for differences, spread bets, options, ADR’s, etc) giving rise to an exposure, whether direct or indirect, to the total issued share capital of a financial company. The issued share capital of a financial company would include ordinary shares and preference shares but would exclude debt securities.

10. Should any holdings in a financial company that are held as part of a basket of shares or a share index be included in any aggregation of a person's economic interest in the company?
Any economic interest held as part of a basket, index or exchange traded fund (‘ETF’) where the predominance of the components in the basket, index or ETF are financial companies must be included.
Market participants should be aware of their overall position and the effect of their trading strategy on their net short positions in financial companies. Where an index is exempt from the disclosure regime because the predominance of its components are not financial companies, it is not necessary to take into account the financial company components of the holding in the index when making calculations to determine whether there is an obligation to disclose net short positions.

11. Which financial companies are subject to the disclosure regime?
We have published a list of financial companies as attachment to our measure dated 1 June 2009. The list has been prepared on a best endeavours basis.

12. Why is disclosure required while the general prohibition against creating or increasing a net short position has expired?
The disclosure requirements enable the AFM to check causal relationships between (the creation of) a short position and manipulative strategies. It further enables the AFM to review the consequences of the expiration of the general prohibition against creating or increasing a net short position.

13. How is the relevant denominator calculated?
The relevant denominator for the calculation of net short positions is the total issued share capital of the financial company comprising ordinary shares or preference shares. See also the AFM website (www.afm.nl)> Registers> Notifications> Issued Capital>

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14. Should positions held on trading platforms in other countries be included in the numerator?
Yes.

15. To whom does the disclosure responsibility apply (e.g. the financial company or the holder of the short position in that company)?
The disclosure obligation applies to the holder of the net short position. See also FAQ 6.

16. In what format must the disclosure be made?
The disclosure must be made by means of a "Notification form short position" on the AFM website.

17. What is the process for making a disclosure?
To make a disclosure, the notification form can be sent by fax or e-mail and postal mail to:
Netherlands Authority for the Financial Markets (AFM)
Disclosure & Registration Department
PO Box 117231001 GS Amsterdam
The Netherlands
fax number: +31 (0)20 - 797 3822
e-mail: melden@afm.nl

18. Should the disclosure be made on a gross or net basis?
A holder of economic interests in a financial company may net its long and short positions in that company. The disclosable position will be any net short position that reaches or exceeds 0.25% and every subsequent 0.10%.

19. When disclosing the net short position, will the holder of that position be required to include details of both short and long positions (if applicable) in order to provide a breakdown of the net economic interest?
No. Only the aggregate net short position that reaches or exceeds 0.25% and every subsequent 0.10% will need to be disclosed. There is no requirement to disclose any individual short and long positions underlying the net position.

20. Does an aggregated net short position need to be broken down into its component parts for the purposes of the disclosure (i.e. any positions in cash settled shares, CFDs, other derivative instruments etc)?
No. Only the aggregate net short position requires disclosure.

21. What is the first deadline for announcing a net short position of 0.25% or above under the new disclosure requirements?
The first disclosure deadline is Tuesday 2 June 2009 close of business. This disclosure should relate to any net short position that reaches or exceeds 0.25% and every subsequent 0.10% held at close of business on Monday 1 June 2009.

22. How frequently are net short position disclosures required?
Subsequent to the first disclosure deadline of Tuesday 2 June 2009, a person must disclose any net short position which reaches, exceeds or falls below the thresholds of 0.25% and every subsequent 0.10% by end of business on the day following each day on which the disclosable short position is held. The net short position disclosed should be that held at the end of the previous day. A disclosure is not required if the size of the short position has not changed since the previous disclosure.

23. If a person’s previously disclosed net short position falls below the 0.25% disclosure threshold, is a further disclosure of this fact required?
Yes. If a person’s net short position falls below 0.25%, one last disclosure of that fact is required.

24. Where a person has a structure that includes more than one legal entity, at what level is a net short position disclosure required?
A disclosure should be made at group level and needs to be specified at group level, provided that the disclosure clearly states which position belongs to which entity. Each legal entity is allowed to disclose on behalf of the group. All the positions within the group have to be aggregated.

Further questions

25. What if I have another question not covered by the FAQs or wish to make a comment about the new rules?
We may publish additional FAQs or clarify existing ones as further questions arise. For technical questions (only) in relation to the disclosure of short positions please call on + 31 (0)20 797 3717  or e-mail to melden@afm.nl. For all other queries or comments in relation to the new rules, please write in to:
Netherlands Authority for the Financial Markets (AFM)
Financial Infrastructure Department
P.O. Box 11723
1001 GS AMSTERDAM
The Netherlands