European Parliament and Ecofin to negotiate regulation on short sales and CDS
On May 17, the European Union's Economic and Financial Affairs Council (Ecofin) released a draft proposal intended to increase transparency and ensure coordination on short selling and credit default swaps. Among other things, Ecofin's proposal would create a two-tier disclosure regime for significant net short positions. Specifically, private disclosure to a regulator would be mandated when a person's short position in a company reached 0.2% of issued share capital, while public disclosure would be triggered on reaching a 0.5% threshold.
Short sales, meanwhile, would only be permitted in situations where a person had borrowed the relevant shares, entered into an agreement to borrow the shares or made other arrangements to ensure that settlement could be effected. While similar restrictions are included with respect to sovereign debt, the proposal generally exempts transactions that serve to hedge a long position in debt instruments. The restrictions could also be temporarily suspended where the liquidity of sovereign debt fell below a specific threshold.
Negotiations are now expected to get underway with the European Parliament, which released its own proposal in March, in order to finalize the regulations.
