Friday, July 10, 2009

CESR Publishes Consultation on Pan-European Short Selling Disclosure

On July 8, 2009, the Committee of European Securities Regulators ("CESR") published a consultation paper on its proposal for a pan-European short selling transparency regime. The initiative follows measures enacted since 2008 by a significant number of CESR members to restrain and/or condition short selling practices within their jurisdictions as a result of the financial crisis, which led to fragmented and complex compliance requirements for market participants across Europe.

CESR's approach is based on a two-tier disclosure system of significant net short positions. When a person reaches a net short position equal to 0.1% (the private disclosure threshold) of the issued share capital of a particular issuer, such fact would need to be disclosed to the regulator. A second-tier threshold requiring disclosure to all market participants is proposed at 0.5% (the public disclosure threshold). Further disclosures are envisaged when a position increases or decreases by a 0.1%. In addition, CESR proposes a lower public disclosure threshold (0.25%) during periods of particular vulnerability for an issuer, such as during a rights issue.

The proposed disclosure regime would only apply to shares admitted to trading on a European Economic Area regulated market or a Multilateral Trade Facility. As usual, exemptions for market makers are envisaged.

CESR recommends that the proposed regime be enacted through EU legislation, either as a regulation or directive. While the current proposal is only concerned with the short selling disclosure regime, CESR will continue to analyze the need for harmonized measures regulating the practice of short selling beyond disclosure.

CESR has invited interested persons to express their views on the consultation paper. Comments should be submitted online via CESR’s website under the heading "Consultations" at www.cesr.eu by September 30, 2009.