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Short selling For Issuers of securities

New rules for the notification of short positions in listed companies will apply in Europe with effect from 1 November 2012. The new rules arise from the Regulation on short selling and certain aspects of credit default swaps and the technical implementation standards for this regulation.

Public notifications in a register

Notification must be made of any position attaining 0.2% of the issued share capital, and of every subsequent 0.1% above this threshold. Notifications starting at 0.5% and every subsequent 0.1% above this threshold will be made public via the short selling register. Notification must also be made of net short positions in sovereign debts that exceed or fall below specific threshold values, but these notifications will not be made public.

How can notifications be made of a net short position?

Net short sell notifications should be made electronically via Loket AFM. If you do not have an access code, one can be requested by e-mailing your company details to loket@afm.nl.

Who is exempt from the duty of notification?

The duty of notification and specific restrictions on this duty do not apply to market makers and liquidity providers that conduct transactions. However, to be eligible for this exemption, market makers must actually submit an application to the AFM to be allowed to make use of the exemption.

Calculating a net short position

To calculate whether a natural person or legal person has a net short position, their short positions and long positions must be examined. This examination must take into account all forms of economic interests that this person has in the issued share capital of an enterprise or the sovereign debt of a Member State or of the European Union. This can include the economic interest obtained by the use of derivatives, such as options, futures, contracts for differences and spread bets, but also by the use of indices, baskets of securities, or index funds.

Unhedged short transaction only under certain conditions

A short transaction in a share can only be contracted if a reasonable case can be made that the shares sold can actually be delivered. This so-called ‘locate rule’ requires an arrangement with a third party. This third party must confirm that the share has been located, which means that settlement of the short position can take place normally on the date applicable for the transaction. The same applies for a short transaction in sovereign debt. A transaction related to a credit default swap on sovereign debt can only be contracted if this transaction does not lead to an unhedged position.

More information

ESMA has published frequently asked questions on its website. The consultation papers and the final reports can be found on this website.

Do you have questions about the regulation? Contact us at + 31 (0)20 797 3717 or send an email to melden@afm.nl

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