Short Selling Regulation: 1 year after entering into effect

Today it is one year ago that the Short Selling Regulation (the Regulation) entered into effect. The introduction of the Regulation means that market parties are obliged to notify the regulator concerning short sell share positions in the issued capital of listed companies starting from 0.2% (and any next 0.1%), and to disclose public notifications of positions starting from 0.5%. Notifications of net short positions in sovereign debt must also be made to the regulator if these positions fall below or exceed certain thresholds, but this does not have to be made public.

Until November 2012, a Dutch notification regime of net short positions in financial institutions starting from 0.25% in issued capital was applicable.

So far, the notification obligation under the Regulation has resulted in approximately 900 public notifications of net short sell share positions and a multitude of notifications to the AFM regarding positions of up to 0.5%.

The top 10 of the largest notifying parties perform approximately 65% of all public notifications, with Marshall Wace and Blackrock being the parties who have so far made the largest number of public notifications.

After the Regulation came into effect, the information about net short positions that has been included in the short selling register since 1 November had to be considered by the market and a balance had to be found.
Investors are now sufficiently familiar with the information about short positions and include it in their decision on whether or not to invest in an issuer. The fact that the short selling register is consulted often is clear from the more than 40 thousand page views so far.

According to the AFM, the intended effect of the Regulation – achieving greater transparency in cases of short positions – has been realised, in view of the number of notifications in the register and the number of visitors the register has received.

During its supervision, the AFM has already requested information from several market parties about short transactions performed by them. The information requested relates to the information on the basis of which the market parties assumed a short position, insight into the transactions that were performed, and insight into the parties' arrangements that enabled them to hedge a short position.

ESMA published an updated version of the Q&A's in January. The final guidelines with respect to the exemption for the activities of market makers were published in April. The AFM has indicated that it will apply the guidelines in its supervision of compliance with the Regulation. There is, however, a difference of opinion among the European regulators with respect to the application of the guidelines.

European regulator ESMA drew up and published a review of the Regulation in June. ESMA made several recommendations for the amendment of the Regulation whereby the main elements were left unchanged. The review serves as input for the European Commission for its report to the European Council and the European Parliament.

The AFM promotes fairness and transparency within financial markets. We are the independent supervisory authority for the savings, lending, investment and insurance markets. We promote the fair and conscientious provision of financial services to consumers and private investors, as well as professional and semi-professional parties. We supervise the fair and efficient operation of the capital markets. Our aim is to improve consumers’ and companies' confidence in the financial markets, both in the Netherlands and abroad. In performing this task, the AFM contributes to the stability of the financial system, the economy and the reputation and prosperity of the Netherlands.

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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