Help Print this page 
Title and reference
Short selling of securities - EUR-Lex

Summaries of EU legislation: direct access to the main summaries page.
Languages and formats available
BG ES CS DA DE ET EL EN FR GA HR IT LV LT HU MT NL PL PT RO SK SL FI SV
HTML html ES html DE html EN html FR html IT
Multilingual display
Text

Short selling of securities - EUR-Lex

EU law regulating certain aspects of short selling and credit default swaps.

ACT

Regulation (EU) No 236/2012 of the European Parliament and of the Council on short selling and certain aspects of credit default swaps.

SUMMARY

What's the issue?

In times of financial instability, certain financial transactions (see below) bear the risk of aggravating any downward spiral in the prices of shares, especially in banks, threatening their viability and creating risks to the whole banking system.

Such instability in the financial markets can spill over into the real economy.

The transactions in question are:

  • Short selling - a transaction in which a financial institution sells a financial product it has borrowed, with the aim of buying it back later. The institution hopes that in the meantime the price of the product will have declined, so it has to pay less than the price it obtained from the sale.
  • Naked short selling - perceived as riskier - when the seller has not even borrowed the financial product in the first place.
  • Credit default swaps - highly risky, unregulated derivatives.

What does this law do?

The Regulation lays down strict rules on short selling and certain aspects of credit default swaps, in proportion to the risks associated with them, including:

  • Measures to prevent nakedshort selling of shares and loans issued by governments (called sovereign debt).
  • A ban on naked CDS transactions (including on sovereign debt).
  • Disclosure requirements - financial institutions have to disclose certain short selling transactions to the banking authorities. Larger ones -above a certain threshold- must be publicly disclosed to the markets.
  • In periods of exceptional financial instability, the competent authorities in any EU country can temporarily restrict short selling if the price of the securities in question is falling significantly.
  • A proposed suspension has to be notified to other national authorities and to the European Securities and Markets Authority (ESMA) that shall issue an opinion on it.

REFERENCES

Act

Entry into force

Deadline for incorporation into national law

Official Journal

Regulation (EU) No 236/2012

24.3.2012

-

OJ L 86 of 24.3.2012

15.01.2014

Top