The European Commission has revised the regulations of the net short position reporting and published rules to permanently lower the initial net short position reporting threshold from 0.2% to 0.1% under the EU Short Selling Regulation (SSR). The new threshold took effect on 31 January 2022.
Any natural or legal person who has a net short position in relation to the issued share capital of a company that has shares admitted to trading on a trading venue, shall notify the relevant competent authority where the position reaches or falls below 0.1% of the issued share capital of the company concerned and each 0.1% above that. The Hungarian competent authority is the Central Bank of Hungary (MNB), which monitors the market based on the notification, and investigates if the short selling results in an abnormal market.
In connection with the pandemic, the European Securities and Markets Authority (ESMA) has decided to reduce the initial net short position reporting threshold from 0.2% to 0.1% as temporary measures, which were applied from 16 March 2020 and were renewed several times in June, September and December 2020. The measure was expired on May 2021, but relating to the ESMA's proposal, the European Commission modified SSR and constantly applies 0.1% threshold for the initial net short position reporting.
The SSR determines a two-step model, but the second step was not modified. It means that a natural or legal person who has a net short position in relation to the issued share capital of a company that has shares admitted to trading on a trading venue shall disclose details of that position to the public where the position reaches or falls 0.5 % of the issued share capital of the company and each 0.1 % above that. The first step informs the authorities about potential systemic risks, the second step supports the market to be aware of individual short positions.
By Krisztian Brody, Attorney at Law, KCG Partners Law Firm