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European Short Selling Rules, effective 1 November 2012

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With effect from 1 November, new rules will apply in Europe governing the disclosure of short positions in listed companies.

Public notifications in the register

A position must be disclosed if it amounts to 0.2% of the issued capital, and on each occasion that it reaches an additional 0.1% above this level. Disclosure is also required, for example, when the position changes from 0.35% to 0.15%. Disclosures of positions of 0.5% or more and each additional 0.1% are published through the registers of the national supervisor to which the party must make disclosure.

Net short positions in sovereign debt must also be disclosed in the event they exceed or fall below certain threshold values. Separate thresholds have been set for this purpose.

These new rules mean that the current regulation governing the disclosure of short positions of 0.25% or more in financial enterprises to the AFM will lapse on 1 November 2012.

The new rules are part of the Regulation on short selling and certain aspects of credit default swaps and technical standards applying to their implementation. The regulations for short selling within Europe will thus be harmonised with effect from November 2012.

Calculating the net short position

Short and long positions must be taken into account in order to determine whether a natural person or a legal entity has a net short position. All forms of economic interest held in the issued share capital of an enterprise or sovereign debt of a Member State or of the European Union must be counted. These may concern economic interests acquired through derivative instruments, such as options, futures, contracts for difference and spread bets, but also through indices, baskets of securities or index funds.

Uncovered short transactions only permitted subject to conditions

A short transaction in a share may only be taken if it can be plausibly demonstrated that it is likely that the shares sold can actually be delivered. This so-called ‘locate rule’ requires an arrangement with a third party, which must confirm that the security has been located and therefore the short position can be settled normally on the date applying to the transaction. The same applies to a short transaction in sovereign debt. A transaction relating to a credit default swap on sovereign debt may only be effected if it does not lead to an uncovered position.

Which parties are exempt from the disclosure requirement?

The disclosure requirement and certain limitations thereto do not apply to transactions effected by market-makers and liquidity providers. In order to qualify for this exemption, market-makers must however have notified the AFM before 1 October. ESMA has submitted further regulations to the market for consultation in this respect.

Further information

ESMA has published a list of frequently asked questions on its website. The consultation papers and the final reports can also be found at:

The AFM is committed to promoting fair and transparent financial markets.

As an independent market conduct authority, we contribute to a sustainable financial system and prosperity in the Netherlands.

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