The European Securities and Markets Authority has published a final report setting out its technical advice to the European Commission on elements of the Short Selling Regulation that relate to market making, short-term bans on short selling and the transparency, reporting and disclosure requirements around net short positions. ESMA consulted on a draft of its technical advice in July 2017.
ESMA believes that the differentiation between the concepts of "market maker" under the revised Markets in Financial Instruments Directive and "market making activities" under the SSR should remain, but recommends revising the definition of "market making activities" under the SSR to ensure that certain activities carried out on a trading venue and OTC can benefit from the SSR exemption for market making activities. ESMA recommends extending the scope of the market making exemption to additional instruments that are currently only traded OTC and hedged through shares and sovereign debt.
For a firm to benefit from the SSR "market making activities" exemption it must be a member of the market on which it deals as principal in one of the capacities listed under the definition of market making activities in the financial instrument for which it notifies the exemption. ESMA proposes removing the membership requirement for OTC market-making activity. ESMA also suggests that market makers on trading venues be required to be members or participants of only one of the trading venues where their market-making activity takes place, rather than all of the trading venues.
To improve the procedure for imposing short-term bans on short selling in case of a significant decline in price, ESMA proposes changing the scope of the ban to include a ban on entering into or increasing net short positions. It also proposes allowing only the national regulator of the most relevant market to be able to adopt a short-term ban applicable across Europe.
ESMA's technical advice also includes recommendations on the transparency of net short positions and reporting requirements.
View the Final Report.
View the July Consultation.
