The short selling regulation is a regulation of the European Union (EU) 236/2012 of 14 March 2012 on short selling and certain aspects of credit default swaps.
The regulation requires holders of net short positions to make notifications once certain criteria have been met. Short selling options are restricted and competent authorities are given powers to suspend or restrict short selling of such transactions under certain circumstances.
The Regulation is aimed to achieve the following:
- To increase the transparency of short positions held by investors in certain financial instruments,
- to mitigate settlement risk and other risks linked with uncovered or naked short selling,
- to mitigate risks in sovereign debt markets posed by uncovered (naked) Credit Default Swaps (CDS) positions,
- ensuring that the competent authorities have clear powers to intervene in exceptional situations which may increase systemic risks and have a negative impact on financial stability,
- ensuring co-ordination between Member States and the European Securities and Markets Authority (ESMA) in exceptional situations.
Implementation of regulation
The regulation was implemented into Icelandic law with Act no. 55/2017 (in Icelandic). The short-selling regulation consists of Regulation (EU) no. 236/2012, as well as the Implementing Regulations and Delegated Regulations that implement the so-called technical standards.
Notification of net short positions and uncovered positions in credit default swaps (CDS)
According to the regulation, individuals and legal entities are required to report net short positions in shares and sovereign debt instruments to the competent authorities as soon as they go above or below a certain level. It is also necessary in some cases to report exposure to uncovered sovereign credit default swaps (CDS).
Useful links
- Before market makers contact the Central Bank of Iceland for further information they are encouraged to study the information that can be found on ESMA‘s website.
- The short selling regulation has four technical standards, Implementing Regulation (EU) 827/2012 and delegated regulations (EU). 826/2012, (EU) 918/2012 and (EU) 919/2012. The technical standards provide more detail on the implementation of the provisions of the short selling regulation.