The European Securities and Markets Authority, the pan-EU financial watchdog, tightened rules on short-selling on Monday, and will now require hedge funds and other holders of net short positions to notify their respective national regulators of positions greater than 0.1 per cent of a company’s share capital.
ESMA issued the temporary requirement on Monday against a backdrop of sustained extreme market volatility sparked by the Coronavirus pandemic, circumstances the regulatory agency described as “a serious threat to market confidence in the EU”.
Previously, the threshold of disclosure for short positions – a core element of most hedge fund strategies – was 0.2 per cent.
“ESMA considers that lowering the reporting threshold is a precautionary action that, under the exceptional circumstances linked to the ongoing COVID-19 pandemic, is essential for authorities to monitor developments in markets,” the agency said in an announcement, adding the plan – which takes immediate effect – is “appropriate and proportionate”.
“The measure can support more stringent action if required to ensure the orderly functioning of EU markets, financial stability and investor protection.”