While regulators in the EU have lifted the temporary COVID-19-related short-selling bans, they will monitor the markets and impose further restrictions if required.
Regulators in Austria, Belgium, France, Greece, Italy, and Spain announced that the temporary short-selling bans imposed in those jurisdictions expired on 18 May 2020 at 11.59pm.
Most of the bans restricted the increase of “net short positions” in certain shares under the purview of the relevant regulators and were introduced to curb market volatility and manage uncertainties surrounding the economic impact of the COVID-19 pandemic. Article 20 of the Short Selling Regulation (SSR), under which the bans were introduced, permits national competent authorities in the EU a reasonable amount of discretion to implement short-selling bans in respect of shares. As a result, the scope of the various bans differed by jurisdiction (for example, in terms of duration, prohibited activities/outcomes, and exemptions). Market participants faced difficulty understanding and implementing the required changes across their entire global trading operations in the short period between the announcement of the bans and their effective date.
These differences have been attributed to political tensions between various EU member states over the need for a ban and, if so, its form. These tensions meant that ESMA could not secure the consensus needed to implement an EU-wide ban. German MEP, Markus Ferber, urged a coordinated ban across the EU. In contrast, the FCA stated that although it could not rule out the imposition of a ban, it set a “high bar” and would rarely impose its own ban on the short-selling of UK shares. The BaFIN also issued a statement to clarify that the bans had limited impact on trading in financial instruments referencing certain EURO STOXX indices provided by the Deutsche Börse Group. Although regulators took measures to harmonise the various restrictions in mid-April (when the bans were due to expire, but subsequently renewed), a number of discrepancies continued to persist.
On 18 May 2020, the regulators announced the termination of the bans on the basis that markets had stabilised and, in some instances, volatility had fallen to pre-pandemic levels. Nonetheless, a number of regulators stated that they would continue to monitor the markets and reinstate the bans if necessary. Market participants should therefore continue to monitor developments in this area. Longer term, the bans have highlighted limitations in the EU’s short-selling regime, and reignited debate as to the precise impact of short-selling activity, which have prompted some investors to call for a review of the SSR.
As a reminder, ESMA’s decision to lower the existing net short disclosure thresholds to 0.1% continues to apply until 16 June 2020.