MFA Recommends Changes to EU Short Selling Regulation

On November 19, MFA responded to the European Securities and Markets Authority’s (ESMA) consultation on the “Review of Certain Aspects of the Short Sale Regulation.” MFA made the following main points:

  • MFA strongly supports the creation of a centralized portal for reporting net short positions, and this portal should accommodate automated reporting, for example in XML format;
  • MFA emphasizes the need for a common understanding of the calculation of issued share capital (the denominator in the calculation of net short positions), and this could be accomplished either through the creation of a single data source or ESMA guidance on what constitutes a reliable third-party source;
  • MFA encourages the EU to move toward aggregate, anonymized reporting of net short positions, as the existing individual public reporting mandate above the 0.5 percent threshold has been shown to cause herding behavior and volatility in EU markets. As an interim step toward aggregate reporting, we recommend raising the public reporting threshold well above 0.5 percent of issued share capital.
  • It is vitally important that private net short positions remain confidential, and MFA urges ESMA to ensure the confidentiality provisions in Article 9(3) of the SSR are applied equally across the Member States.
  • MFA strongly recommends against the use of short sale bans given that the empirical evidence suggests bans harm a wide range of investors through reduced liquidity and higher transaction costs. However, should the ability to ban short sales continue MFA considers any such bans should:
    • Only extend to increases or the creation of new net short positions.
    • Exclude indices, baskets, and ETFs.
    • Have a greater uniformity of approach between relevant competent authorities in order to avoid the creation of chaotic market conditions.