As the Commission points out, short selling plays an important role in financial markets. More than enough evidence exists to prove that the possibly speculative actions that have recently triggered local restrictions have primarily been conducted using instruments that were not admitted to trading on Regulated Markets, but that were traded OTC. FESE understands the rationale behind the measures taken by the authorities as extreme market conditions triggered extreme responses to seek to restore confidence in the markets. However, notwithstanding the laudable intentions, the restrictions imposed by several authorities in the EU have been both discriminatory and ineffective. To avoid similar situations in the future, FESE support a strong co-ordinating role to be given to ESMA to ensure that a consistent approach is taken by the relevant Competent Authorities (CAs) across all venues trading the same product.
Short‐selling increases liquidity and leads to more efficient price discovery, which in turn facilitates hedging and risk management by market users. Furthermore, naked short selling on an organized and Regulated Market appears not to be a problem.
However, the relevant speculative actions appear to have been conducted using instruments not admitted to trading on a Regulated Market and have been traded OTC without transparent or enforceable settlement arrangements. Policy focus should therefore be on OTC products traded in the OTC space.
With this background in mind ‐ and considering that there probably is not enough established evidence that short-selling needs regulatory measures as those proposed in the Consultation Paper ‐ FESE Members would not oppose the proposal to require private reporting of significant short positions to the CAs. Private reporting to CAs would represent a valuable tool to gain information on market movements only if applied in a non‐discriminatory way.
The real challenge for regulators will be that of ensuring a level playing field in which risk is well managed by the authorities.
Finally, the scope should include instruments that are used for the purpose of short‐selling activities – therefore, other than shares, CDS and derivatives on single stocks should be included in the new regime.
On the other hand, derivative instruments whose underlying is a commodity, an index or a fixed‐income instrument should not be included in the scope because they serve a different function.
© FESE
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