Tuesday 5 July 2011
REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

on Short Selling and certain aspects of Credit Default Swaps

(Text with EEA relevance)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 114 thereof,

Having regard to the proposal from the European Commission,

After transmission of the draft legislative act to the national parliaments,

Having regard to the opinion of the European Economic and Social Committee (1),

Having regard to the opinion of the European Central Bank (2),

Acting in accordance with the ordinary legislative procedure,

Whereas:

(1)

At the height of the financial crisis in September 2008, competent authorities in several Member States and the United States of America adopted emergency measures to restrict or ban short selling in some or all securities. They acted due to concerns that at a time of considerable financial instability, short selling could aggravate the downward spiral in the prices of shares, notably in financial institutions, in a way which could ultimately threaten their viability and create systemic risks. The measures adopted by Member States were divergent as the Union lacks a specific legislative framework for dealing with short selling issues.

(2)

To ensure the functioning of the internal market and to improve the conditions of its functioning, in particular the financial markets, and to ensure a high level of consumer and investor protection, it is therefore appropriate to lay down a common framework with regard to the requirements and powers relating to short selling and credit default swaps and to ensure greater coordination and consistency between Member States where measures have to be taken in an exceptional situation. It is necessary to harmonise the framework for short selling and certain aspects of credit default swaps, to prevent the creation of obstacles to the internal market, as it is likely that Member States continue taking divergent measures.

(3)

It is appropriate and necessary for the provisions to take the legislative form of a Regulation as some provisions impose direct obligations on private parties to notify and disclose net short positions relating to certain instruments and regarding uncovered short selling. A regulation is also necessary to confer powers on the European Supervisory Authority (European Securities and Markets Authority) (ESMA) established by Regulation (EU) No 1095/2010 of the European Parliament and of the Council of 24 November 2010 (3) to coordinate measures taken by competent authorities or to take measures itself.

(4)

To set an end to the current fragmented situation in which some Member States have taken divergent measures and to restrict the possibility of divergent measures being taken by competent authorities it is important to address the potential risks arising from short selling and credit default swaps in a harmonised manner. The requirements to be imposed should address the identified risks taking into account differences in the Member States and the potential economic impact of the requirements and without unduly detracting from the benefits that short selling provides to the quality and efficiency of markets by increasing market liquidity (as the short seller sells securities and then later repurchases those securities to cover the short sale) and by allowing investors to act when they believe a security is overvalued short selling leading therefore to the more efficient pricing of securities .

(4a)

Commodity markets and, in particular, agricultural markets do not fall within the scope of this Regulation. As some risks identified in this Regulation may also occur on those markets and in addition to the communication of the Commission on tackling the challenges in commodity markets and on raw materials, the Commission should, by 1 January 2012, report to the European Parliament and the Council on the risks existing on those markets, taking into account their specificities, and put forward any appropriate proposals. Commodities relevant to the energy sector should be addressed in the Commission's proposal for a Regulation on energy market integrity and transparency (COM(2010)0726).

(5)

The scope of the Regulation should be as broad as possible to provide for a preventive framework to be used in exceptional circumstances. The framework should cover all financial instruments but provide for a proportionate response to the risks that short selling of different instruments may represent. Therefore, it is only in the case of exceptional situations that competent authorities and ESMA should be entitled to take measures concerning all types of financial instruments, going beyond the permanent measures that only apply to particular types of instruments where there are clearly identified risks that such measures need to address.

(6)

Enhanced transparency relating to significant net short positions in specific financial instruments is likely to be of benefit to both the regulator and to market participants. For shares admitted to trading on a trading venue in the Union, a two-tier model should be introduced that provides for greater transparency of significant net short positions in shares at the appropriate level. Above a certain threshold notification of a position should be made privately to the regulators concerned to enable them to monitor and, where necessary, investigate short selling that may create systemic risks or be abusive; at a higher threshold, positions should also be publicly disclosed to the market in anonymous form in order to provide useful information to other market participants about significant individual short selling positions in shares.

(7)

Disclosure to regulators of significant net short positions relating to sovereign debt would provide important information to assist regulators in monitoring whether such positions are in fact creating systemic risks or being used for abusive purposes. Notification to regulators of significant net short positions relating to sovereign debt in the Union should therefore be provided for. Such a requirement should only include private disclosure to regulators as publication of information to the market for such instruments could have a detrimental effect on sovereign debt markets where liquidity is already impaired. ▐

(8)

The notification requirements for sovereign debt should apply to the debt issued by the Union and Member States, including any ministry, department, central bank, agency or instrumentality that issues debt on behalf of a Member State but excluding regional bodies or quasi public bodies that issue debt.

(9)

In order to ensure a comprehensive and effective transparency requirement, it is important to include not only short positions created by trading shares, or sovereign debt on trading venues but also short positions created by trading outside trading venues and economic net short positions created by the use of derivatives , such as options, futures, index-related instruments , contracts for differences and spread bets relating to shares or sovereign debt .

(10)

To be useful to regulators and the market, any transparency regime should provide complete and accurate information about a natural or legal person's positions. In particular, information provided to the regulator or the market should take into account both short and long positions so as to provide valuable information about the natural or legal person's net short position in shares, sovereign debt and credit default swaps.

(11)

The calculation of short position or long position should take into account any form of economic interest which a natural or legal person has in relation to the issued share capital of company or issued sovereign debt of the Member State or the Union. In particular, it should take into account such an interest obtained directly or indirectly through the use of derivatives such as options, futures, contracts for differences and spread bets relating to shares or sovereign debt , and indices, baskets and exchange traded funds . In the case of positions relating to sovereign debt it should also take into account credit default swaps relating to sovereign debt issuers.

(12)

In addition to the transparency regime for the reporting of net short positions in shares, a requirement for the marking of sell orders that are executed ▐ as short sales as observed at the end of the day should be introduced to provide supplementary information about the volume of short sales of shares executed ▐. Information about short sell transactions should be collated by the firm and communicated to the competent authority at least daily in order to ▐ help competent authorities ▐ to monitor levels of short selling.

(13)

Buying credit default swaps without having a long position in underlying sovereign debt or another position in assets or portfolio of assets whose value is likely to be negatively impacted by a decline in the creditworthiness of the relevant sovereign can be, economically speaking, equivalent to taking a short position on the underlying debt instrument. The calculation of a net short position in relation to sovereign debt should therefore include credit default swaps relating to an obligation of a sovereign debt issuer. The credit default swap position should be taken into account both for the purposes of determining whether a natural or legal person has a significant net short position relating to sovereign debt that needs to be notified to a competent authority ▐.

(14)	To enable the ongoing monitoring of positions the transparency obligations should also include notification or disclosure where a change in a net short position results in an increase or decrease above or below certain thresholds.

(15)

In order to be effective, it is important that the transparency obligations apply regardless of where the natural or legal person is located, including where the natural or legal person is located outside the Union, but has a significant net short position in a company that has shares admitted to trading on a trading venue in the Union or a net short position in sovereign debt issued by a Member State or the Union.

(16)

Uncovered short selling of shares and sovereign debt may increase the potential risk of settlement failure, ▐ volatility and market abuse . To reduce such risks it is appropriate to place proportionate restrictions on uncovered short selling, taking into account that no systemic risk is created if the borrowing arrangement is made by the end of the trading day. A failure to cover a short position at the end of the trading day should result in sufficiently high penalties so as not to allow the seller to make a profit .

(16a)

Although settlement discipline is an important component of well-functioning financial markets, the technical details of the settlement discipline regimes should not be included in the scope of this Regulation and should be defined in the appropriate post-trading legislative proposal of the Commission taking into account the work done by the Commission and the working group on harmonisation of settlement cycles on this matter. The Commission should therefore make concrete proposals by the end of 2011, in parallel with a proposal to create a harmonised legal framework for central securities depositories.

(16b)

Sovereign credit default swaps should be based on the insurable interest principle whilst recognising that there can be interests in a sovereign state other than bond ownership.

(17)

Measures relating to sovereign debt and sovereign credit default swaps including increased transparency and restrictions on uncovered short selling should impose requirements which are proportionate and at the same time avoid an adverse impact on the liquidity of sovereign bond markets and sovereign bond repurchase (repo) markets.

(18)

Shares are increasingly admitted to trading on different trading venues both within the Union and outside the Union. Many large companies based outside the Union also have shares admitted to trading on a trading venue within the Union. For reasons of efficiency, it is appropriate to exempt securities from certain notification and disclosure requirements, where the principal venue for trading of that instrument is outside the Union.

(19)

Market making activities play a crucial role in providing liquidity to markets within the Union and market makers need to take short positions to perform that role. Imposing requirements on such activities could severely inhibit their ability to provide liquidity and have a significant adverse impact on the efficiency of the Union markets. Further market makers would not be expected to take significant short positions except for very brief periods. It is therefore appropriate to exempt natural or legal persons involved in such activities from requirements which may impair their ability to perform such a function and therefore adversely affect the Union markets. In order to capture equivalent third country entities a procedure is necessary to assess the equivalence of the third country markets. The exemption should apply to the different types of market making activity but not to exempt proprietary trading. It is also appropriate to exempt certain primary market operations such as those relating to sovereign debt and stabilisation schemes as they are important activities that assist the efficient functioning of markets. Competent authorities should be notified of the use of exemptions and should have the power to prohibit a natural or legal person from using an exemption if they do not fulfil the relevant criteria in the exemption. Competent authorities should also be able to request information from the natural or legal person to monitor their use of the exemption.

(20)

In the case of adverse developments which constitute a serious threat to financial stability or to market confidence in a Member State or the Union, competent authorities should have powers of intervention to require further transparency or to impose temporary restrictions on short selling, credit default swap transactions or other transactions to prevent a disorderly decline in the price of a financial instrument. Such measures could be necessary due to a variety of adverse events or developments including not just financial or economic events but also for example natural disasters or terrorist acts. Furthermore, some adverse events or developments requiring measures could arise simply in one Member State only and not have any cross border implications. The powers need to be flexible enough to deal with a range of different exceptional situations.

(21)

While competent authorities will usually be best placed to monitor market conditions and to initially react to an adverse event or development by deciding if a serious threat to financial stability or to market confidence has arisen and whether it is necessary to take measures to address this situation, the powers and the conditions and procedures for their use should be harmonised as far as possible.

(22)

In the case of a significant fall in the price of a financial instrument on a trading venue a competent authority should also have the ability to temporarily restrict short selling of the financial instrument on that venue within its own jurisdiction or request to ESMA such restriction in other jurisdictions in order to be able to intervene rapidly where appropriate ▐ to prevent a disorderly price fall of the instrument concerned.

(23)

Where an adverse event or development extends beyond one Member State or has other cross border implications, close consultation and co-operation between competent authorities is essential. ESMA should perform a key co-ordination role in such a situation and ▐ ensure consistency between competent authorities. The composition of ESMA which includes representatives of competent authorities will assist it in its ability to perform such a role.

(24)	In addition to co-ordinating measures by competent authorities, ESMA should ensure that measures are only taken by competent authorities where it is necessary and proportionate to do so. ESMA should have the power to give opinions to competent authorities on the use of the powers of intervention.

(25)

While competent authorities will often be best placed to monitor and to react quickly to an adverse event or development, ESMA should also have the power to itself take measures where short selling and other related activities threaten the orderly functioning and integrity of financial markets or the stability of the whole or part of the financial system in the Union, there are cross border implications and sufficient measures have not been taken by competent authorities to address the threat. ESMA should consult the European Systemic Risk Board established by Regulation (EU) No 1092/2010 of the European Parliament and of the Council of 24 November 2010  (4) (ESRB) whenever possible, and other relevant authorities when the measure could have effects beyond the financial markets, as could be the case for commodity derivatives which are used to hedge physical positions.

(26)

The powers of ESMA under this Regulation in exceptional situations to restrict short selling and other related activities are conceived in accordance with the powers contained in Article 9(5) of Regulation (EU) No 1095/2010. The powers conferred on ESMA in exceptional situations should be without prejudice to the powers of ESMA in an emergency situation under Article 18 of Regulation (EU) No 1095/2010. In particular, ESMA should be able to adopt individual decisions requiring competent authorities to take measures or individual decisions addressed to financial market participants under that article.

(27)	Powers of intervention of competent authorities and ESMA to restrict short selling, credit default swaps and other transactions should only be temporary in nature and should only be exercised for such a period and to the extent necessary to deal with the specific threat.

(28)

Because of the specific risks which can arise from the use of credit default swaps, such transactions require close monitoring by competent authorities. In particular, competent authorities should have the power in exceptional cases to require information from natural or legal persons entering into such transactions about the purpose for which the transaction is entered into.

(29)

ESMA should be given a general power to conduct an inquiry into an issue or practice relating to short selling or the use of credit default swaps to assess whether that issue or practice poses any potential threat to financial stability or to market confidence. ESMA should publish a report setting out its findings when it conducts such an inquiry and, if it considers that a measure should be introduced at Union level, its decision should be binding on competent authorities .

(30)

As some measures may apply to natural or legal persons and actions outside the Union, it is necessary in certain situations that competent authorities and authorities in third countries cooperate. Competent authorities should therefore enter into agreements with authorities in third countries. ESMA should coordinate the development of such cooperation agreements and the exchange between competent authorities of information received from third countries.

(31)

This Regulation respects the fundamental rights and observes the principles recognized in particular in the Treaty on the Functioning of the European Union (TFEU) and in the Charter of Fundamental Rights of the European Union (Charter) , notably the right to the protection of personal data recognized in Article 16 TFEU and in Article 8 of the Charter. In particular, transparency regarding significant net short positions, including public disclosure above a certain threshold where provided for under this Regulation, is necessary for reasons of financial market stability and investor protection. Such transparency will enable regulators to monitor the use of short selling in connection with abusive strategies and the implications on the well functioning of the markets. In addition, such transparency may help avoiding information asymmetries, ensuring that all market participants are adequately informed about the extent to which short selling is affecting prices. Any exchange or transmission of information by competent authorities should be in accordance with the rules on the transfer of personal data as laid down in Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data (5). Any exchange or transmission of information by ESMA should be in accordance with the rules on the transfer of personal data as laid down in Regulation (EC) No 45/2001 of the European Parliament and of the Council of 18 December 2000 on the protection of individuals with regard to the processing of personal data by the Union institutions and bodies and on the free movement of such data (6), which should be fully applicable to the processing of personal data for the purposes of this Regulation.

(32)

Based on guidelines adopted by ESMA and taking into consideration the Commission's Communication on reinforcing sanctioning regimes in the financial services sector, Member States should lay down rules on penalties applicable to infringements of the provisions of this Regulation and ensure that they are implemented. The penalties should be effective, proportionate and dissuasive. Ultimately, a harmonised penalties regime should be established in the Union . ▐

(34)

In order to […], power to adopt acts in accordance with Article 290 TFEU should be delegated to the Commission in respect of details concerning calculating short positions, when a natural or legal person has an uncovered position in a credit default swap, notification or disclosure thresholds and further specification of criteria and factors for determining when an adverse event or development creates a serious threat to financial stability or to market confidence in a Member State or the Union. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level. ESMA should play a central role in the drafting of delegated acts by delivering advice to the Commission.

(35)

The Commission should submit a report to the European Parliament and the Council assessing the appropriateness of the reporting and public disclosure thresholds provided for, the operation of the restrictions and requirements related to the transparency of net short positions and whether any other restrictions or conditions on short selling or credit default swaps are appropriate.

(36)

Though national competent authorities are better placed to monitor and have better knowledge of market developments, the overall impact of the problems related to short selling and credit default swaps can only be fully perceived in a Union context. For this reason, the objectives of this Regulation can be better achieved at the Union level; the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve those objectives.

(37)

Since some Member States have already put in place restrictions on short selling and since delegated acts and binding technical standards are provided for which should be adopted before the framework to be introduced can be usefully applied, it is necessary to provide for a sufficient period of time,

HAVE ADOPTED THIS REGULATION:

CHAPTER I

GENERAL PROVISIONS

Article 1

Scope

This Regulation shall apply to the following financial instruments:

(1)	financial instruments that are admitted to trading on a trading venue in the Union, including such instruments when traded outside a trading venue;

(2)

derivatives set out in Annex I Section C points (4) to (10) of Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments (7) that relate to a financial instrument referred to in paragraph (1) or an issuer of a financial instrument referred to in paragraph (1), including such derivatives when traded outside a trading venue;

(3)	debt instruments issued by a Member State or the Union and derivatives set out in Annex I Section C points (4) to (10) of Directive 2004/39/EC that relate to such debt instruments issued by a Member State or the Union or to an obligation of a Member State or the Union.

Article 2

Definitions

1.   For the purpose of this Regulation, the following definitions shall apply:

(a)	"authorised primary dealer" means a natural or legal person who has signed an agreement with an issuer of sovereign debt under which that natural or legal person undertakes to deal as principal in connection with primary and secondary market operations relating to debt issued by that issuer;

(b)	"central counterparty" means an entity that legally interposes itself between the counterparties to the contracts traded within one or more financial markets, becoming the buyer to every seller and the seller to every buyer and which is responsible for the operation of a clearing system;

(c)

"credit default swap" means a derivative contract in which one party pays a fee to another party in return for compensation or a payment in the event of a default by a reference entity, or a credit event relating to that reference entity and any other derivative contract that has a similar economic effect;

(d)	"financial instrument" means an instrument listed in Annex I, Section C of Directive 2004/39/EC;

(e)	"home Member State" in relation to a regulated market, an investment firm operating a multilateral trading facility, or any other investment firm, means the home Member State for that regulated market or investment firm within the meaning of Article 4(1)(20) of Directive 2004/39/EC;

(f)	"investment firm" means an investment firm within the meaning of Article 4(1)(1) of Directive 2004/39/EC;

(g)	"sovereign debt" means a debt instrument issued by the Union, or a Member State including any ministry, department, central bank, agency or instrumentality of the Member State;

(h)	"issued share capital" in relation to a company, means the total of ordinary and any preference shares issued by the company but does not include convertible debt securities;

(i)

"issued sovereign debt" means: (i) in relation to a Member State, the total value of sovereign debt issued by the Member State or any ministry, department, central bank, agency or instrumentality of the Member State that has not been redeemed; (ii) in relation to the Union, the total value of sovereign debt issued by the Union that has not been redeemed;

(j)	"local firm" means a firm referred to in Article 2(1)(l) of Directive 2004/39/EC which deals for the account of other members of a market or makes prices for them;

(k)

"market making activities " means the activities of an investment firm or a third-country entity or a local firm that is a member of a trading venue or of a market in a third country, whose legal and supervisory framework has been declared equivalent pursuant to Article 15(2), when it deals as principal in a financial instrument, whether traded on or outside a trading venue, in either or both of the following capacities: (i) by posting firm, simultaneous two-way quotes of comparable size and at competitive prices, with the result of providing liquidity on a regular and ongoing basis to the market; (ii) as part of its usual business, by fulfilling orders initiated by a client or in response to a client's request to trade, and by hedging positions arising out of those dealings ;

(l)	"multilateral trading facility" means a multilateral system within the meaning of Article 4(1)(15) of Directive 2004/39/EC;

(m)	"principal venue" in relation to a share means the venue for the trading of that share with the highest turnover;

(n)	"regulated market" means a multilateral system within the meaning of Article 4(1)(14) of Directive 2004/39/EC;

(o)

"relevant competent authority" means: (i) in relation to sovereign debt of a Member State or a credit default swap relating to an obligation of a Member State, the competent authority of that Member State; (ii) in relation to sovereign debt of the Union or a credit default swap relating to an obligation of the Union, the competent authority of the jurisdiction in which the European Financial Stability Facility is established; (iii) in relation to a financial instrument other than an instrument referred to in point (i) or (ii), the competent authority for that financial instrument as defined in Article 2(7) of Commission Regulation (EC) No 1287/2006 (8) and determined in accordance with Articles 9 to 16 of that Regulation; (iv) in relation to a financial instrument that is not covered under point (i), (ii) or (iii), the competent authority of the Member State in which the financial instrument was first admitted to trading on a trading venue;

(p)

"short sale" in relation to a share or debt means any sale of the share or debt which the seller does not own at the time of entering into the agreement to sell including such a sale where at the time of entering into the agreement to sell the seller has borrowed or agreed to borrow the share or debt for delivery at settlement;

(q)	"trading day" means a trading day within the meaning of Article 4 of Regulation (EC) No 1287/2006;

(r)	"trading venue" means a regulated market or a multilateral trading facility in the Union;

(s)	"turnover" of a share, means turnover as defined in Article 2(9) of Regulation (EC) No 1287/2006;

(sa)	"uncovered short sale" in relation to a share or debt means a sale of the share or debt which does not fulfil the conditions of Article 12(1).

2.   The Commission shall be empowered to adopt delegated acts in accordance with Article 36 specifying the definitions laid down in paragraph 1, in particular specifying when a natural or legal person is considered to own a financial instrument for the purposes of the definition of short sale in paragraph 1(p).

Article 3

Short and long positions

1.   For the purposes of this Regulation, a position resulting from either of the following shall be considered a short position relating to the issued share capital of a company or issued sovereign debt of a Member State or the Union:

(a)	a short sale of a share issued by the company or a debt instrument issued by the Member State or the Union;

(b)

a natural or legal person entering into transaction which creates or relates to a financial instrument other than an instrument referred to in point (a) and the effect or one of the effects of the transaction is to confer a financial advantage on the natural or legal person in the event of a decrease in the price or value of the share or debt instrument.

2.   For the purposes of this Regulation, a position resulting from either of the following shall be considered a long position relating to the issued share capital of a company or issued sovereign debt of a Member State or the Union:

(a)	holding a share issued by the company or a debt instrument issued by the Member State or the Union;

(b)

a natural or legal person entering into a transaction which creates or relates to a financial instrument other than an instrument referred to in point (a) and the effect or one of the effects of the transaction is to confer a financial advantage on the natural or legal person in the event of an increase in the price or value of the share or debt instrument.

3.   For the purposes of paragraph 1 , the calculation of a short position shall, in respect of any short position held by the relevant person indirectly, including through or by way of any index, basket of securities or any interest in any exchange traded fund or similar entity, be determined by the natural or legal person in question acting reasonably having regard to publicly available information as to the composition of the relevant index or basket of securities, or of the interests held by the relevant exchange traded fund or similar entity. For the avoidance of doubt, in calculating such short position, no person shall be required to obtain any real-time information as to such composition from any person.

For the purposes of paragraph 2, the calculation of a long position shall, for all purposes, include, as long positions, any interests held by the relevant person in any bond or debt security convertible into a share issued by the relevant company.

For the purposes of paragraphs 1 and 2 the calculation of a short position and a long position relating to sovereign debt shall include any credit default swap that relates to an obligation or a credit event relating to a Member State or the Union.

4.   For the purposes of this Regulation, the position remaining after deducting any long position that a natural or legal person holds in relation to the issued share capital of a company from any short position that that natural or legal person holds in relation to that capital shall be considered a net short position in relation to the issued share capital of that company.

5.   For the purposes of this Regulation, the position remaining after deducting any long position that a natural or legal person holds in relation to the issued sovereign debt of a Member State or the Union from any short position that that natural or legal person holds in relation to the same debt shall be considered a net short position in relation to the issued sovereign debt of a Member State or the Union.

6.   The calculation under paragraphs 1 to 5 for sovereign debt shall be for each single Member State or for the Union even if separate entities within the Member State or the Union issue sovereign debt on behalf of the Member State or Union.

In the case of fund management activities, where different investment strategies are pursued in relation to a particular issuer through separate funds managed by the same fund manager, the calculation of net short and net long positions for the purposes of paragraphs 3, 4 and 5 shall take place at the level of each fund. Where the same investment strategy is pursued in relation to a particular issuer through more than one fund, the net short and net long positions in each of those funds shall be aggregated. Where two or more portfolios within the same entity are managed on a discretionary basis pursuing the same investment strategy in relation to a particular issuer those positions should be aggregated for the calculation of net short positions and net long positions. With respect to the management of a client portfolio on a non-discretionary basis, the calculation of the net short position or net long position is the legal responsibility of the client.

7.   The Commission shall be empowered to adopt delegated acts in accordance with Article 36 specifying:

(a)	cases in which a natural or legal person is considered to hold a share or debt instrument for the purposes of paragraph 2;

(b)	cases in which a natural or legal person has a net short position for the purposes of paragraphs 4 and 5 and the method of calculation of the position;

(c)	the method of calculating positions for the purposes of paragraphs 3, 4 and 5 when different entities in a group have long or short positions or for fund management activities related to separate funds.

Article 4

Uncovered position in a credit default swap

1.   For the purposes of this Regulation, a natural or legal person shall be considered to have an uncovered position in a credit default swap relating to an obligation of a Member State or the Union, to the extent that the credit default swap is not serving to hedge against either the risk of default of the issuer where the natural or legal person has a long position in the sovereign debt of that issuer or the risk of decline in the value of any asset or portfolio of assets to the natural or legal person holding such asset or portfolio of assets where the decline of the price of those asset or portfolio of assets has a high correlation with the decline of the price of the obligation of a Member state or the Union in the case of a decline in the creditworthiness of a Member State or the Union . The party under a credit default swap that is obliged to make the payment or pay the compensation in the event of a default or a credit event relating to the reference entity does not by reason of that obligation have an uncovered position for the purposes of this paragraph.

2.   The Commission shall be empowered to adopt delegated acts in accordance with Article 36 specifying, for the purposes of paragraph 1:

(a)	cases in which a credit default swap transaction is considered to be hedging against a default risk and the method of calculation of an uncovered position in a credit default swap;

(b)	the method of calculating positions where different entities in a group have long or short positions or for fund management activities related to separate funds.

CHAPTER II

TRANSPARENCY OF NET SHORT POSITIONS

Article 5

Notification to competent authorities of significant net short positions in shares

1.   A natural or legal person who has a net short position in relation to the issued share capital of a company that has shares admitted to trading on a trading venue shall notify the relevant competent authority whenever the position reaches or falls below a relevant notification threshold referred to in paragraph 2.

2.   A relevant notification threshold is a percentage that equals 0,2 % of the value of the issued share capital of the company concerned and each 0,1 % above that.

3.    If necessary, the European Supervisory Authority (European Securities and Markets Authority) (ESMA) may issue and send to the European Parliament, the Council and the Commission an opinion on adjusting the thresholds referred to in paragraph 2, taking into account the developments in financial markets. The Commission may, within three months of receipt of the opinion of ESMA, by means of delegated acts in accordance with Article 36, modify the thresholds mentioned in paragraph 2, taking into account the developments in financial markets.

3a.     Notifications under this Article shall be made in accordance with Article 9 and the calculation of net short positions shall be made in accordance with Article 3.

Article 6

Reporting of short sales to competent authorities

All investment firms and all members of a regulated market or multilateral trading facility shall include in the transaction reports referred to in Article 25(3) of Directive 2004/39/EC a field indicating, for transactions in shares, whether the transaction constitutes a short sale or not. Intermediaries that undertake short sales indicate these as such in the transaction report of such sales at the end of the trading day to the relevant competent authority. That information shall not be disclosed to the public.

The Commission shall be empowered to adopt delegated acts in accordance with Article 36 specifying how such information shall be communicated to competent authorities.

Article 7

Public disclosure of significant net short positions in shares

1.    The relevant competent authority shall publish details of the position whenever the position reaches or falls below a relevant publication threshold referred to in paragraph 2. Such disclosure shall not identify the holder of the net short position.

2.   A relevant publication threshold is a percentage that equals 0,5 % of the value of the issued share capital of the company concerned and each 0,1 % above that.

3.    If necessary, ESMA may issue and send to the European Parliament, the Council and the Commission an opinion on adjusting the thresholds referred to in paragraph 2, taking into account the developments in financial markets.

The Commission may, within three months of receipt of the opinion of ESMA, by means of delegated acts in accordance with Article 36, modify the thresholds mentioned in paragraph 2, taking into account the developments in financial markets.

3a.     Notifications under this Article shall be made in accordance with Article 9 and the calculation of net short positions shall be made in accordance with Article 3.

Article 8

Notification to competent authorities of significant net short positions in sovereign debt and credit default swaps

1.   A natural or legal person who has a net short position relating to the issued sovereign debt of a Member State or of the Union shall notify the relevant competent authority whenever such position reaches or falls below a relevant notification threshold for the Member State concerned or the Union.

▐

2.   The relevant notification thresholds shall consist of an initial amount and then additional incremental levels in relation to each Member State and the Union, as specified in the measures taken by the Commission in accordance with paragraph 3. ESMA shall publish on its website the notification thresholds for each Member State.

3.   The Commission shall be empowered to adopt delegated acts in accordance with Article 36 specifying the amounts and incremental levels referred to in paragraph 2, subject to the following conditions:

(a)	the thresholds must not be set at such a level as to require notification of positions which are of minimal value;

(b)	the total value of outstanding issued sovereign debt for each Member State and the Union , the turnover and the average size of positions held by market participants relating to the sovereign debt of that Member State or the Union must be taken into account.

3a.     Notifications under this Article shall be made in accordance with Article 9 and the calculation of net short positions shall be made in accordance with Article 3.

Article 9

Method of notification and disclosure

1.   Any notification under Article 5 ▐ or 8 shall set out details of the identity of the natural or legal person who has the relevant position, the size of the relevant position, the issuer in relation to which the relevant position is held and the date on which the relevant position was created, changed or ceased to be held.

Any disclosure under Article 7 shall include details, in anonymous form, of the size of the relevant position, the issuer in relation to which the relevant position is held and the date on which the relevant position was created, was changed or ceased to be held.

For the purposes of Articles 5, 7 and 8, natural and legal persons that hold significant net short positions shall keep, for a period of five years, records of the gross positions which make a significant net short position.

2.   The relevant time for calculation of a net short position shall be at the end of the trading day , except for automated night trades where the reference should be T+1 on which the natural or legal person has the relevant position. The notification or disclosure shall be made not later than 3.30 pm on the following trading day.

3.   The notification of information to a relevant competent authority shall be made in accordance with the system set out in Article 12(1) of Regulation (EC) No 1287/2006

4.   The public disclosure of information set out in Article 7 shall be made in a manner ensuring fast access to information on a non-discriminatory basis. The information shall be made available to the officially appointed mechanism of the home Member State of the issuer of the shares referred to in Article 21(2) of Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market (9).

5.    In order to ensure consistent harmonisation of this Article, ESMA shall develop draft regulatory technical standards specifying the details of the information to be provided for the purposes of paragraph 1. ESMA shall submit drafts for those regulatory technical standards to the Commission by [ 31 December 2011].

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph ▐ in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.

▐

6.   In order to ensure uniform conditions of application of paragraph 4 , ESMA shall develop draft implementing technical standards specifying the means by which information may be disclosed to the public. ESMA shall submit drafts for those implementing technical standards to the Commission by [31 December 2011].

Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph ▐ in accordance with Article15 of Regulation (EU) No 1095/2010.

Article 10

Application outside the Union

The notification and disclosure requirements under Articles 5, 7 and 8 apply to natural or legal persons whether domiciled or established within or outside the Union.

Article 11

Information to be provided to ESMA

1.   Competent authorities shall provide information in summary form to ESMA on a quarterly basis on net short positions relating to shares or sovereign debt ▐ for which it is the relevant competent authority and receives notifications under Articles 5 to 8.

2.   ESMA may request at any time, in order to carry out its duties under this Regulation, additional information from a relevant competent authority of a Member State about net short positions relating to shares or sovereign debt ▐.

The competent authority shall provide the requested information to ESMA at the latest within seven calendar days. Where there are adverse events or developments which constitute a serious threat to financial stability or to market confidence in the Member State or in another Member State, the competent authority shall provide the requested information to ESMA within 24 hours.

2a.     In order to ensure consistent harmonisation of this Article, ESMA shall develop draft regulatory technical standards specifying the details of the information to be provided in accordance with paragraphs 1 and 2. ESMA shall submit drafts for those regulatory technical standards to the Commission by [31 December 2011].

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.

2b.     In order to ensure uniform conditions of application of paragraph 1, ESMA shall develop draft implementing technical standards defining the format of information to be provided in accordance with paragraphs 1 and 2. ESMA shall submit drafts for those implementing technical standards to the Commission by [31 December 2011].

Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1095/2010.

CHAPTER III

TREATMENT OF SHORT SALES AND CREDIT DEFAULT SWAPS

Article 12

Restrictions on uncovered short sales and credit default swaps

1.   A natural or legal person may only enter into a short sale of a share admitted to trading on a trading venue or a short sale of a sovereign debt instrument where one of the following conditions is fulfilled at the end of the trading day :

(a)	the natural or legal person has borrowed the share or sovereign debt instrument;

(b)	the natural or legal person has entered into an agreement to borrow the share or sovereign debt instrument;

(c)	the natural or legal person has an arrangement with a third party under which that third party has confirmed that the share or sovereign debt instrument has been located and reserved for lending to the natural or legal person so that settlement can be effected when it is due.

1a.     A natural or legal person may enter into credit default swap transactions relating to an obligation of a Member State or the Union only where that transaction does not lead to an uncovered position in a credit default swap as referred to in Article 4.

2.   In order to ensure consistent harmonisation of this Article, ESMA shall develop draft regulatory technical standards identifying the types of agreements or arrangements that adequately ensure that the share or sovereign debt instrument will be available for settlement. ESMA shall in particular take into account the need to preserve the efficiency of markets especially sovereign bond markets and sovereign bond repurchase markets (repo markets). ESMA shall submit drafts for those regulatory technical standards to the Commission by 31 December 2011 .

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph shall be adopted in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.

▐

Article 14

Exemption where the principal trading venue is outside the Union

1.   Articles 5, 7, 12 and 13 shall not apply to shares of a company admitted to trading on a trading venue in the Union where the principal venue for the trading of the shares is located in a country outside the Union.

2.   The relevant competent authority for shares of a company that are traded on a trading venue in the Union and a venue located outside the Union shall determine, at least every two years, whether the principal venue for the trading of those shares is located outside the Union.

The relevant competent authority shall notify ESMA of any such shares identified as having their principal venue located outside the Union.

ESMA shall publish the list of shares for which the principal venue is located outside the Union every two years. The list shall be effective for a two-year period.

3.    In order to ensure consistent harmonisation of this Article, ESMA shall develop draft regulatory technical standards specifying the method for calculation of the turnover to determine the principal venue for the trading of a share. ESMA shall submit drafts for those regulatory technical standards to the Commission by 31 December 2011.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph ▐ in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.

4.   In order to ensure uniform conditions of application of paragraphs 1 and 2 ESMA shall develop draft implementing technical standards to determine:

(a)	the date on which and period in respect of which any calculation of the principal venue for a share is to be made;

(b)	the date by which the relevant competent authority is to notify ESMA of those shares where the principal venue is outside the Union;

(c)	the date from which the list is to be effective following publication by ESMA.

ESMA shall submit drafts for those implementing technical standards to the Commission by [31 December 2011].

Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph shall be adopted in accordance with Article 15 of Regulation (EU) No 1095/2010.

Article 15

Exemption for market making and primary market operations

1.   Articles 5, 6, 7, 8 and 12 shall not apply to market making activities. ▐

2.   The Commission shall be empowered to adopt delegated acts in accordance with Article 36 , determining that the legal and supervisory framework of a third country ensures that a market authorised in that third country complies with legally binding requirements which are, for the purpose of the application of the exemption set out in paragraph 1, equivalent to the requirements resulting from Title III of Directive 2004/39/EC, from Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003 on insider dealing and market manipulation (market abuse) (10) and Directive 2004/109/EC, and which are subject to effective supervision and enforcement in that third country.

The legal and supervisory framework of a third country may be considered equivalent where that framework fulfils all the following conditions in that third country:

(a)	markets are subject to authorisation and to effective supervision and enforcement on an ongoing basis;

(b)	markets have clear and transparent rules regarding admission of securities to trading so that such securities are capable of being traded in a fair, orderly and efficient manner, and are freely negotiable;

(c)	security issuers are subject to periodic and ongoing information requirements ensuring a high level of investor protection;

(d)	market transparency and integrity are ensured by preventing market abuse in the form of insider dealing and market manipulation.

3.   Articles 8 and 12 shall not apply to the activities of a natural or legal person when, acting as an authorised primary dealer pursuant to an agreement with an issuer of sovereign debt, it is dealing as principal in a financial instrument in relation to primary or secondary market operations relating to the sovereign debt.

4.   Articles 5, 6, 7 and 12 shall not apply to a natural or legal person when it enters into a short sale of a security or has a net short position in relation to the carrying out of a stabilisation under Chapter III of Commission Regulation (EC) No 2273/2003 of 22 December 2003 implementing Directive 2003/6/EC of the European Parliament and of the Council as regards exemptions for buy-back programmes and stabilisation of financial instruments (11).

5.   The exemptions referred to in paragraphs 1 and 3 shall apply only where the natural or legal person concerned has first notified the competent authority of its home Member State, in writing that they intend to make use of the exemption. The notification shall be made not less than thirty calendar days before the natural or legal person intends to use the exemption.

6.   The competent authority of the home Member State may prohibit the use of the exemption if it considers that the natural or legal person does not satisfy the conditions of the exemption. Any prohibition shall be imposed within the 30 calendar day period referred to in the first subparagraph or subsequently if the competent authority becomes aware that there have been any changes in the circumstances of the person so that they no longer satisfy the conditions.

7.   A third-country entity that is not authorised in the Union shall send the notification referred to in paragraph 5 to the competent authority of the main trading venue in the Union in which it trades.

8.   A natural or legal person which has given a notification under paragraph 5 shall as soon as possible notify the competent authority of its home Member State in writing where there are any changes affecting its eligibility to use the exemption.

9.   The competent authority of the home Member State may request information, in writing, from a natural or legal person operating under the exemptions set out in paragraph 1, 3 or 4 about short positions held or activities conducted under the exemption. The natural or legal person shall provide the information not later than four calendar days after the request is made at the latest.

10.   The relevant competent authority shall notify ESMA within two weeks of notification in accordance with paragraph 5 or 8 of any market makers and authorised primary dealers who are making use of the exemption and of any market makers and authorised primary dealers who are no longer making use of the exemption.

11.   ESMA shall publish on its website and keep up to date a list of market makers and authorised primary dealers who are using the exemption.

CHAPTER V

POWERS OF INTERVENTION OF COMPETENT AUTHORITIES AND OF ESMA

Section 1

Powers of Competent Authorities

Article 16

Disclosure in exceptional situations

1.   The competent authority of a Member State may require natural or legal persons who have net short positions in relation to a specific financial instrument or class of financial instruments to notify it or to disclose to the public details of the position whenever the position reaches or falls below a notification threshold fixed by the competent authority, where both of the following conditions are fulfilled:

(a)	there are adverse events or developments which constitute a serious threat to financial stability or to market confidence in the Member State or one or more other Member States;

(b)	in the case of public disclosure, the measure will not have a detrimental effect on the efficiency of financial markets which is disproportionate to its benefits .

2.   Paragraph 1 shall not apply to financial instruments in respect of which transparency is already required under Articles 5 to 8.

Article 16a

Notification by lenders in exceptional situations

1.     The competent authority of a Member State may take the measure referred to in paragraph 2, where both of the following conditions are fulfilled:

(a)	there are adverse events or developments which constitute a serious threat to financial stability or to market confidence in the Member State;

(b)	the measure will not have a detrimental effect on the efficiency of financial markets which is disproportionate to its benefits.

2.     The competent authority of a Member State may require natural or legal persons engaged in the lending of a specific financial instrument or class of financial instruments to notify any significant increase in the fees requested for such lending.

Article 17

Restrictions on short selling and similar transactions in exceptional situations

1.   The competent authority of the Member State in which the principal trading venue of a financial instrument is situated, may take the measures referred to in paragraphs 2 or 3, where both of the following conditions are fulfilled:

(a)	there are adverse events or developments which constitute a serious threat to financial stability or to market confidence in the Member State or one or more other Member States;

(b)	the measures will not have a detrimental effect on the efficiency of financial markets which is disproportionate to its benefits .

2.   The competent authority of the Member State may prohibit or impose conditions relating to natural or legal persons entering into:

(a)	a short sale; or

(b)	a transaction other than a short sale which creates, or relates to, a financial instrument and the effect or one of the effects of that transaction is to confer a financial advantage on the natural or legal person in the event of a decrease in the price or value of another financial instrument.

3.   The competent authority of the Member State may prevent natural or legal persons from entering into transactions relating to financial instruments or limit the value of transactions in the financial instrument that may be entered into.

4.   A measure under paragraph 2 or 3 may apply to transactions concerning all financial instruments, financial instruments of a specific class or a specific financial instrument. The measure may apply in circumstances or be subject to exceptions specified by the relevant competent authority. Exceptions may in particular be specified to apply to market making activities and primary market activities.

Article 18

Restrictions on credit default swap transactions in exceptional situations

1.   The competent authority of a Member State may limit natural or legal persons from entering into credit default swap transactions relating to an obligation issued by its own Member State or limit the value of uncovered credit default swap positions that may be entered into by natural or legal persons that relate to an obligation issued by its own Member State, where both of the following conditions are fulfilled:

(a)	there are adverse events or developments which constitute a serious threat to financial stability or to market confidence in the Member State or one or more other Member States;

(b)	the measure will not have a detrimental effect on the efficiency of financial markets which is disproportionate to its benefits .

2.   A measure taken under paragraph 1 may apply to credit default swap transactions of a specific class or to specific credit default swap transactions. The measure may apply in circumstances or be subject to exceptions specified by the competent authority. Exceptions may in particular be specified to apply to market making activities and primary market activities.

2a.     A competent authority which has taken a measure under paragraph 1 may ask ESMA to consider exercising its powers under Article 24(1)(c) if the adverse events or developments addressed require that the measure be introduced at Union level.

Article 19

Power to restrict short selling of financial instruments temporarily in the case of a significant fall in price

1.   Where the price of a financial instrument on a trading venue has during a single trading day fallen by the value referred to in paragraph 4 from the closing price on that venue on the previous trading day, the competent authority of the home Member State for that venue shall consider whether it is appropriate to prohibit or restrict natural or legal persons from engaging in short selling of the financial instrument on the trading venue or otherwise limit transactions in that financial instrument on that trading venue in order to prevent a disorderly decline in the price of the financial instrument.

Where the competent authority is satisfied under the first subparagraph that it is appropriate to do so, it shall in the case of a share or debt prohibit or restrict persons from entering into a short sale on the trading venue or in the case of another type of financial instrument, limit transactions in that financial instrument on that trading venue.

2.   The measure shall apply for a period not exceeding the end of the trading day following the trading day on which the fall in price occurs. The competent authority of the home Member State may extend the length of the measure if the grounds for taking the measure justify such an extension.

3.   The measure shall apply in circumstances or be subject to exceptions specified by the competent authority. Exceptions may in particular be specified to apply to market making activities and primary market activities.

3a.     After receiving notification from a competent authority to prohibit or restrict natural or legal persons from engaging in short selling of the financial instrument on the trading venue or otherwise limit transactions in that financial instrument on that trading venue, ESMA shall consider before the beginning of the following trading day whether it is appropriate to extend the measure to all trading venues that trade the financial instrument concerned by the measure in accordance with Article 24.

4.   The fall in value shall be 10 % or more in the case of a share and for other classes of financial instruments an amount to be specified by the Commission.

If necessary, ESMA may issue and send to the European Parliament, the Council and the Commission an opinion on adjusting the thresholds referred to in paragraph 4, taking into account the developments in financial markets.

The Commission shall, within three months of receipt of the opinion of ESMA, adopt delegated acts in accordance with Article 36, specifying options related to the period of application of the measure and the fall in value for financial instruments ▐, taking into account the specificities of each class of financial instrument and the differences of volatility .

5.    In order to ensure consistent harmonisation of this Article, ESMA shall develop draft regulatory technical standards specifying the method of calculation of the 10 % fall for shares and of the fall in value specified by the Commission as referred to in paragraph 4. ESMA shall submit drafts for those regulatory technical standards to the Commission by 31 December 2011.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph ▐ in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.

Article 20

Period of restrictions

Any measure imposed under Articles 16, 16a, 17 and 18 shall be valid for an initial period not exceeding three months from the date of publication of the notice referred to in Article 21.

Any such measure may be renewed for further periods not exceeding three months at a time if the grounds for taking the measure continue to be applicable . If the measure is not renewed after that three-month period, it shall automatically expire .

Article 21

Notice of restrictions

1.   A competent authority shall publish on its website notice of any decision to impose or renew any measure referred to in Articles 16 to 19.

2.   The notice shall specify at least details of:

(a)	the measures imposed including the instruments and class of transactions to which they apply and their duration;

(b)	the reasons why the competent authority believes it is necessary to impose the measures including the evidence supporting those reasons.

3.   A measure under Articles 16 to 19 shall take effect when the notice is published or at a time specified in the notice that is after its publication and shall only apply in relation to a transaction entered into after the measure takes effect.

Article 22

Notification to ESMA and other competent authorities

1.   Before imposing or renewing any measure under Articles 16, 16a, 17 or 18 and before imposing any restriction under Article 19, a competent authority shall notify ESMA and the other competent authorities of the measure it proposes.

2.   The notification shall include details of the proposed measures, the class of financial instruments and transactions to which they will apply, the evidence supporting those reasons and when the measures are intended to take effect.

3.   Notification of a proposal to impose or renew a measure under Articles 16, 16a, 17 and 18 shall be made not less than 24 hours before the measure is intended to take effect or to be renewed. In exceptional circumstances, a competent authority may make the notification less than 24 hours before the measure is intended to take effect where it is not possible to give 24 hours notice. A notification under Article 19 shall be made before the measure is intended to take effect.

4.   A competent authority of a Member State that receives notification under this Article may take measures in accordance with Articles 16 to 19 in that Member State where it is satisfied that the measure is necessary to assist the other competent authority. The competent authority shall also give notice in accordance with paragraphs 1, 2 and 3 where it proposes to take measures.

Section 2

Powers of ESMA

Article 23

Coordination by ESMA

1.   ESMA shall perform a facilitation and coordination role in relation to measures taken by competent authorities under Section 1. In particular ESMA shall ensure that a consistent approach is taken by competent authorities regarding measures under Section 1 especially regarding when it is necessary to use powers of intervention under Section 1, the nature of measures imposed and the commencement and duration of any measures.

2.   After receiving notification under Article 22 of any measure that is to be imposed or renewed under Article 16, 16a, 17 or 18, ESMA shall within 24 hours issue a decision on whether the measure or proposed measure is necessary to address the exceptional situation. The decision shall state whether ESMA considers that adverse events or developments have arisen which constitute a serious threat to financial stability or to market confidence in one or more Member States, whether the measure or proposed measure is appropriate and proportionate to address the threat and whether the proposed duration of the measures is justified. If ESMA considers that measures by other competent authorities are necessary to address the threat, it shall also state it in the decision and request those competent authorities to introduce such measures within 24 hours . The decision shall be published on ESMA's website.

3.    If ESMA considers that a measure should be introduced at Union level its decision shall be binding on competent authorities and shall be introduced within 24 hours .

3a.     ESMA shall regularly review measures under this Article and in any event at least every three months. If a measure is not renewed after that three-month period, it shall automatically expire.

Article 24

ESMA intervention powers

1.   In accordance with Article 9(5) of Regulation (EU) No 1095/2010, ESMA shall, where both conditions in paragraph 2 are satisfied, take one or more of the following measures:

(a)	require natural or legal persons who have net short positions in relation to a specific financial instrument or class of financial instruments to notify a competent authority or to disclose to the public details of any such position;

(b)

prohibit or impose conditions relating to natural or legal persons entering into a short sale or a transaction which creates, or relates to, a financial instrument and the effect or one of the effects of the transaction is to confer a financial advantage on the natural or legal person in the event of a decrease in the price or value of another financial instrument;

(c)

limit natural or legal persons from entering into credit default swap transactions relating to an obligation of a Member State or the Union or limit the value of uncovered credit default swap positions that a natural or legal person may enter into relating to an obligation of a Member State or the Union;

(d)	prevent natural or legal persons from entering into transactions relating to financial instruments falling within the scope of this Regulation or limit the value of transactions in those financial instrument that may be entered into.

A measure may apply in circumstances or be subject to exceptions specified by the relevant competent authority. Exceptions may in particular be specified to apply to market making activities and primary market activities.

2.   ESMA shall take a decision under paragraph 1 only if both of the following conditions are fulfilled:

(a)	the measures listed in points (a) to (d) of the first subparagraph of paragraph 1 address a threat to the orderly functioning and integrity of financial markets or the stability of the whole or part of the financial system in the Union and there are cross border implications;

(b)	a competent authority has not taken measures to address the threat or the measures that have been taken do not sufficiently address the threat.

3.   When taking measures referred to in paragraph 1 ESMA shall take into account the extent to which the measure:

(a)	will significantly address the threat to the orderly functioning and integrity of financial markets or the stability of the whole or part of the financial system in the Union or significantly improve the ability of competent authorities to monitor the threat;

(b)	will not create a risk of regulatory arbitrage;

(c)	will not have a detrimental effect on the efficiency of financial markets, including reducing liquidity in those markets or creating uncertainty for market participants, that is disproportionate to the benefits of the measure.

Where a competent authority or competent authorities have taken a measure under Article 16 , 16a, 17 or 18, ESMA may take any of the measures referred to in paragraph 1 without issuing the decision provided for in Article 23.

4.   Before deciding to impose or renew any measure referred to in paragraph 1, ESMA shall, where appropriate, consult the ESRB and other relevant authorities.

5.   Before deciding to impose or renew any measure referred to in paragraph 1, ESMA shall notify competent authorities of the measure it proposes. The notification shall include details of the proposed measures, the class of financial instruments and transactions to which they will apply, the evidence supporting those reasons and when the measures are to take effect.

6.   The notification shall be made not less than 24 hours before the measure is to take effect or to be renewed. In exceptional circumstances, ESMA may make the notification less than 24 hours before the measure is intended to take effect where it is not possible to give 24 hours notice.

7.   ESMA shall publish on its website notice of any decision to impose or renew any measure referred to in paragraph 1. The notice shall at least specify the following:

(a)	the measures imposed including the instruments and class of transactions to which they apply and the duration of the measures;

(b)	the reasons why ESMA is of the opinion that it is necessary to impose the measures including the evidence supporting the reasons.

8.   A measure shall take effect when the notice is published or at a time specified in the notice that is after its publication and shall only apply in relation to a transaction entered into after the measure takes effect.

9.   ESMA shall review its measures referred to in paragraph 1 at appropriate intervals and at least every three months. If a measure is not renewed after that three-month period, it shall automatically expire. Paragraphs 2 to 8 shall apply to a renewal of measures.

10.   A measure adopted by ESMA under this Article shall prevail over any previous measure taken by a competent authority under Section 1.

Article 25

Further specification of adverse events or developments

The Commission shall be empowered to adopt delegated acts in accordance with Article 36, specifying criteria and factors to be taken into account by competent authorities and ESMA in determining when the adverse events or developments referred to in Articles 16, 16a, 17, 18 and 23 and the threats referred to in Article 24(2)(a) arise.

CHAPTER VI

ROLE OF COMPETENT AUTHORITIES

Article 26

Competent authorities

Each Member State shall designate a competent authority for the purpose of this Regulation. Those competent authorities shall be public authorities. Member States shall inform the Commission, ESMA and the competent authorities of the other Member States of such designations.

Article 27

Powers of competent authorities

1.   In order to fulfil their duties under this Regulation, competent authorities shall have all the supervisory and investigatory powers that are necessary for the exercise of their functions. They shall exercise their powers in any of the following ways:

(a)

directly;

(b)	in collaboration with other authorities;

(c)	by application to the competent judicial authorities.

2.   In order to fulfil their duties competent authorities of Member States shall have, in conformity with national law, the following powers:

(a)	to gain access to any document in any form and to receive or take a copy thereof;

(b)	to require information from any natural or legal person and if necessary to summon and question a natural or legal person with a view to obtaining information;

(c)	to carry out on-site inspections with or without announcement;

(d)	to require existing telephone and existing data traffic records;

(e)	to require the cessation of any practice that is contrary to the provisions in this Regulation;

(f)	to require the freezing and/or the sequestration of assets.

3.   The competent authorities of Member States shall, without prejudice to points (a) and (b) of paragraph 2, have the power in individual cases to require a natural or legal person entering into a credit default swap transaction to provide the following:

(a)	an explanation about the purpose of the transaction and whether it is for the purposes of hedging against a risk or otherwise;

(b)	information verifying the underlying risk where the transaction is for hedging purposes.

Article 28

Inquiries by ESMA

ESMA may, on the request of one or more competent authorities , the European Parliament, the Council, or the Commission or on its own initiative conduct an inquiry into a particular issue or practice relating to short selling or relating to the use of credit default swaps to assess whether the issue or practice poses any potential threat to financial stability or market confidence in the Union.

ESMA shall publish a report setting out its findings and any recommendations relating to the issue or practice within three months from the end of the inquiry .

Article 29

Professional secrecy

1.   The obligation of professional secrecy shall apply to all natural or legal persons who work or who have worked for the competent authority or for any authority or natural or legal person to whom the competent authority has delegated tasks, including auditors and experts contracted by the competent authority. Confidential information covered by professional secrecy may not be disclosed to any other natural or legal person or authority except when such disclosure is necessary for legal proceedings.

2.   All the information exchanged between competent authorities under this Regulation that concerns business or operational conditions and other economical or personal affairs shall for not more than 10 years be considered confidential and be the object of professional secrecy , except when the competent authority states at the time of communication that such information may be disclosed or when such disclosure is necessary for legal proceedings.

Article 30

Obligation to cooperate

The competent authorities of Member States shall cooperate where necessary or expedient for the purposes of this Regulation. In particular, the competent authorities shall, without undue delay, supply each other with information which is relevant for the purposes of carrying out their duties under this Regulation.

Article 30a

Cooperation with ESMA

1.     The competent authorities shall cooperate with ESMA for the purposes of this Regulation in accordance with Regulation (EU) No 1095/2010.

2.     The competent authorities shall provide, without delay, ESMA with all the information necessary to carry out its duties in accordance with Regulation (EU) No 1095/2010.

Article 31

Cooperation in case of request for on-site inspections or investigations

1.   The competent authority of one Member State may request assistance of the competent authority of another Member State with regard to on-site inspections or investigations.

The competent authority shall inform ESMA of any request referred to in the first subparagraph. In the case of an investigation or an inspection with cross-border effect, ESMA shall coordinate the investigation or inspection.

2.   Where a competent authority receives a request from a competent authority of another Member State to carry out an on-site inspection or an investigation, it may:

(a)	carry out the on-site inspection or investigation itself;

(b)	allow the competent authority which submitted the request to participate in an on-site inspection or investigation;

(c)	allow the competent authority which submitted the request to carry out the on-site inspection or investigation itself;

(d)	appoint auditors or experts to carry out the on-site inspection or investigation;

(e)	share specific tasks related to supervisory activities with the other competent authorities.

2a.     ESMA may also conduct all necessary on-site inspections with or without prior announcement.

ESMA may require competent authorities of the Member States to carry out specific investigatory tasks and on-site inspections.

Article 32

Cooperation with third countries

1.   The competent authorities shall conclude cooperation agreements with competent authorities of third countries concerning the exchange of information with third-country supervisory authorities , the enforcement of obligations arising under this Regulation in third countries and the taking of similar measures by the competent authority to complement measures taken under Articles 16 to 25.

A competent authority shall inform ESMA and the other competent authorities where it proposes to enter into such an agreement.

1a.     In accordance with Article 30a, the competent authorities shall transmit information obtained from third-country supervisory authorities to ESMA.

2.   ESMA shall coordinate the development of cooperation agreements between the competent authorities of Member States and the relevant third-country supervisory authorities . In accordance with Article 16 of Regulation (EU) No 1095/2010, ESMA shall adopt guidelines for the preparation of a template agreement that shall be used by competent authorities.

ESMA shall also coordinate the exchange between competent authorities of information obtained from third-country supervisory authorities that may be relevant to the taking of measures under Articles 16 to 25.

3.   The competent authorities shall conclude cooperation agreements on exchange of information with the third-country supervisory authorities only where the information disclosed is subject to guarantees of professional secrecy which are at least equivalent to those set out in Article 29. Such exchange of information shall be intended for the performance of the tasks of those competent authorities.

Article 33

Transfer and retention of personal data

With regard to transfer of personal data between Member States or Member States and a third country, Member States shall apply Directive 95/46/EC. With regard to transfer of personal data by ESMA to Member States or to a third country, ESMA shall comply with Regulation (EC) No 45/2001.

Data shall be retained for a maximum period of five years.

Article 34

Disclosure of information to third countries

The competent authority of a Member State may transfer to the supervisory authority of a third country data and the analysis of data when the conditions laid down in Article 25 or 26 of Directive 95/46/EC are fulfilled and only on a case-by-case basis. The competent authority of the Member State shall be satisfied that the transfer is necessary for the purpose of this Regulation. The transfer of data shall be made only if the third country guarantees that the data will not be transferred to another third country without the express written authorisation of the competent authority of the Member State.

The competent authority of a Member State shall disclose information which is confidential pursuant to Article 29 and which is received from a competent authority of another Member State to a third-country supervisory authority only where the competent authority of the Member State concerned has obtained express agreement of the competent authority which transmitted the information and, where applicable, the information is disclosed solely for the purposes for which that competent authority gave its agreement.

Article 35

Penalties

Based on guidelines adopted by ESMA and taking into consideration the Commission's Communication on reinforcing sanctioning regimes in the financial services sector, Member States shall , in accordance with the fundamental principles in their national legislation establish rules on administrative measures, sanctions and pecuniary penalties applicable to infringements of the provisions of this Regulation and shall take all measures necessary to ensure thatthey are implemented. The measures, sanctions and penalties provided for shall be effective, proportionate and dissuasive. Where the seller breaches the provisions of Article 12, the penalties shall be sufficiently high so as not to allow the seller to make a profit.

In accordance with Regulation (EU) No 1095/2010, ESMA shall adopt guidelines concerning the type of administrative measures and penalties to be established by Members States.

Member States shall notify ▐ the Commission and ESMA of the provisions referred to in the first and second subparagraphs by [1 July 2012] ▐ and shall notify them without delay of any subsequent amendment affecting those provisions.

ESMA shall publish on its website and update regularly a list of existing administrative measures and penalties per Member States.

Member States shall provide ESMA annually with aggregated information regarding all administrative measures and penalties imposed. If a competent authority discloses to the public the fact that an administrative measure or a penalty has been imposed, it shall, contemporaneously, notify ESMA thereof.

CHAPTER VII

DELEGATED ACTS

Article 36

Exercise of the delegation

1.   The power to adopt delegated acts is conferred on the Commission subject to the conditions laid down in this Article.

2.   The delegation of power referred to in Article 2(2), Article 3(7), Article 4(2), Article 5(3), Article 6(2), Article 7(3), Article 8(3), Article 15(2), Article 19(4) and Article 25 shall be conferred on the Commission for an indeterminate period of time.

2a.     Before adopting a delegated act, the Commission shall endeavour to consult ESMA.

3.   A delegation of power referred to in Article 2(2), Article 3(7), Article 4(2), Article 5(3), Article 6(2), Article 7(3), Article 8(3), Article15(2), Article 19(4) and Article 25 may be revoked at any time by the European Parliament or by the Council. A decision to revoke shall put an end to the delegation of power specified in that decision. The decision to revoke shall take effect on the day following that of its publication in the Official Journal of the European Union or on a later date specified therein. It shall not affect the validity of any delegated acts already in force.

4.   As soon as it adopts a delegated act, the Commission shall notify it simultaneously to the European Parliament and to the Council.

5.   A delegated act adopted pursuant to Article 2(2), Article 3(7), Article 4(2), Article 5(3), Article 6(2), Article 7(3), Article 8(3), Article 15(2), Article 19(4) and Article 25 shall enter into force only if no objection has been expressed by either the European Parliament or the Council within a period of three months of notification of that act to the European Parliament and the Council or if, before the expiry of that period, the European Parliament and the Council have both informed the Commission that they will not object. That period shall be extended by three months at the initiative of the European Parliament or of the Council.

▐

Article 39

Committee procedure

1.   The Commission shall be assisted by the European Securities Committee established by Commission Decision 2001/528/EC (12). That committee shall be a committee within the meaning of Regulation (EU) No 182/2011  (13) .

2.   Where reference is made to this paragraph, Article 5 of Regulation (EU) No 182/2011 shall apply, having regard to the provisions of Article 8 thereof.

▐

Article 39a

Deadline for the adoption of delegated acts

The Commission shall adopt the delegated acts under Article 2(2), Article 3(7), Article 4(2), Article 5(3), Article 6(2), Article 7(3), Article 8(3), Article 15(2), Article 19(4) and Article 25 by …  (14) .

CHAPTER VIII

TRANSITIONAL AND FINAL PROVISIONS

Article 40

Review and report

By 30 June 2013 , the Commission shall, in light of discussions with the competent authorities and ESMA, report the European Parliament and the Council on:

(a)	the appropriateness of the reporting and ▐ disclosure thresholds under Articles 5 ▐ and 8;

(aa)	the appropriateness of the public disclosure requirement and the disclosure requirement and the disclosure thresholds under Article 7, in particular with regard to their impact on the efficiency and volatility of financial markets;

(ab)	whether direct, centralised reporting to ESMA is appropriate;

(b)	the operation of the restrictions and requirements in Chapter II;

(c)	whether any other restrictions or conditions on short selling or credit default swaps are appropriate.

Article 41

Transitional provision

Existing measures falling within the scope of this Regulation, in force before 15 September 2010, may remain applicable until [1 July 2013] provided that they are notified to the Commission.

Article 41a

Staff and resource of ESMA

By 31 December 2011, ESMA shall assess the staffing and resources needs arising from the assumption of its powers and duties in accordance with this Regulation and submit a report to the European Parliament, the Council and the Commission.

Article 42

Entry into force

This Regulation shall enter into force on the day following that of its publication in the Official Journal of the European Union.

It shall apply from [1 July 2012].

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(1)  OJ C 84, 17.3.2011, p. 34.

(2)  OJ C 91, 23.3.2011, p. 1.

(3)  OJ L 331, 15.12.2010, p. 84.

(4)  OJ L 331, 15.12.2010, p. 1.

(5)  OJ L 281, 23.11.1995, p. 31.

(6)  OJ L 8, 12.1.2001, p. 1.

(7)  OJ L 145, 30.4.2004, p. 1.

(8)  Commission Regulation (EC) No 1287/2006 of 10 August 2006 implementing Directive 2004/39/EC of the European Parliament and of the Council as regards record-keeping obligations for investment firms, transaction reporting, market transparency, admission of financial instruments to trading, and defined terms for the purpose of that Directive (OJ L 241, 2.9.2006, p. 1).

(9)  OJ L 390, 31.12.2004, p. 38.

(10)  OJ L 96, 12.4.2003, p. 16.

(11)  OJ L 336, 23.12.2003, p. 33.

(12)  OJ L 191, 13.7.2001, p. 45.

(13)  OJ L 55, 28.2.2011, p. 13.

(14)   Six months after entry into force of this Regulation.