32012R0236

WHAT IS THE AIM OF THE REGULATION?

• Regulation (EU) No 236/2012 seeks to regulate certain aspects of short selling¹ and credit default swaps (CDS)² in the European Union (EU).
• It introduces:
  • uniform transparency requirements for investment managers; and
  • new powers for financial regulators in EU Member States and for the European Securities and Markets Authority (ESMA) to use in exceptional circumstances³ where there is a serious threat to financial stability.

KEY POINTS

The regulation:

• covers all types of financial instruments, in particular shares listed in the EU, derivatives and sovereign debt securities (loans issued by governments);
• lays down strict rules on short selling and certain aspects of CDS in proportion to the risks associated with them, including:
  • measures to prevent ‘naked’ short selling⁴ of shares and loans issued by governments,
  • a ban on ‘naked’ CDS transactions (including on sovereign debt);
• sets disclosure requirements – investment managers have to disclose certain short-selling transactions to the competent authorities, whereas larger transactions, above a certain threshold, must be publicly disclosed to the markets;
• gives, in periods of exceptional financial instability in a Member State or in the EU as a whole, the competent authorities temporary powers to require greater transparency or to impose restrictions on short-selling and CDS transactions;
• gives ESMA:
  • a key coordination role to ensure consistency between national competent authorities and to ensure that any measures taken are necessary and proportionate,
  • the power to take measures where the situation has cross-border implications.

Implementing and delegated acts

• Implementing Regulation (EU) No 827/2012 lays down technical standards regarding:
  • the means for public disclosure of net position in shares;
  • the format of the information to be provided to ESMA in relation to net short positions;
  • the types of agreements, arrangements and measures to adequately ensure that shares or sovereign debt instruments are available for settlement; and
  • the dates and period for the determination of the principal venue for a share.
• Delegated Regulation (EU) No 826/2012 supplements Regulation (EU) No 236/2012 regarding:
  • technical standards on notification and disclosure requirements with regard to net short positions;
  • the details of the information to be provided to ESMA in relation to net short positions; and
  • the method for calculating turnover to determine exempted shares.
• Delegated Regulation (EU) No 918/2012 supplements Regulation (EU) No 236/2012 regarding:
  • definitions; and
  • calculating net short positions, covered sovereign CDS, notification thresholds, liquidity thresholds for suspending restrictions, significant falls in the value of financial instruments and adverse events.
• Delegated Regulation (EU) No 919/2012 supplements Regulation (EU) No 236/2012 regarding technical standards for calculating the fall in value for liquid shares and other financial instruments.

COVID-19 pandemic – ESMA decisions

• On 16 March 2020, following the outbreak of the COVID-19 pandemic and given the resulting serious threat to market confidence in the EU, ESMA issued a decision (Decision (EU) 2020/525 – ESMA) temporarily requiring the holders of net short positions in shares traded on an EU-regulated market to notify the relevant national competent authority if the position reaches or exceeds 0.1% of the issued share capital after the entry into force of the decision. This decision was extended on several occasions and finally expired on 19 March 2021.

FROM WHEN DOES THE REGULATION APPLY?

It has applied since 1 November 2012.

BACKGROUND

In times of financial instability, certain financial transactions such as short selling and CDS bear the risk of aggravating any downward spiral in the prices of shares, especially in financial institutions, threatening their viability and creating risks to the whole financial system. Such instability in financial markets can spill over into the real economy.

For further information, see:

• Short selling (European Commission)
• Short selling (ESMA).

KEY TERMS

1. 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 fallen, so it has to pay less than the price it obtained from the sale.
2. Credit default swaps (CDS). Highly risky, unregulated derivatives.
3. Exceptional circumstances. In the context of this regulation, there are adverse events or developments that constitute a serious threat to financial stability or to market confidence in the Member State concerned or in one or more other Member States; and the measure is necessary to address the threat and it will not have a detrimental effect on the efficiency of financial markets, which is disproportionate to its benefits.
4. Naked short selling. A transaction perceived as riskier than normal short selling, since the seller has not even borrowed the financial product in the first place.

MAIN DOCUMENT

Regulation (EU) No 236/2012 of the European Parliament and of the Council of 14 March 2012 on short selling and certain aspects of credit default swaps (OJ L 86, 24.3.2012, pp. 1–24).

Successive amendments to Regulation (EU) No 236/2012 have been incorporated into the original text. This consolidated version is of documentary value only.

RELATED DOCUMENTS

Regulation (EU) 2023/2859 of the European Parliament and of the Council of 13 December 2023 establishing a European single access point providing centralised access to publicly available information of relevance to financial services, capital markets and sustainability (OJ L, 2023/2859, 20.12.2023).

See consolidated version.

European Securities and Markets Authority Decision (EU) 2020/525 of 16 March 2020 to require natural or legal persons who have net short positions to temporarily lower the notification thresholds of net short positions in relation to the issued shares capital of companies whose shares are admitted to trading on a regulated market above a certain threshold to notify the competent authorities in accordance with point (a) of Article 28(1) of Regulation (EU) No 236/2012 of the European Parliament and of the Council (OJ L 116, 15.4.2020, pp. 5–13).

Regulation (EU) 2016/1033 of the European Parliament and of the Council of 23 June 2016 amending Regulation (EU) No 600/2014 on markets in financial instruments, Regulation (EU) No 596/2014 on market abuse and Regulation (EU) No 909/2014 on improving securities settlement in the European Union and on central securities depositories (OJ L 175, 30.6.2016, pp. 1–7).

Commission Delegated Regulation (EU) No 826/2012 of 29 June 2012 supplementing Regulation (EU) No 236/2012 of the European Parliament and of the Council with regard to regulatory technical standards on notification and disclosure requirements with regard to net short positions, the details of the information to be provided to the European Securities and Markets Authority in relation to net short positions and the method for calculating turnover to determine exempted shares (OJ L 251, 18.9.2012, pp. 1–10).

Commission Implementing Regulation (EU) No 827/2012 of 29 June 2012 laying down implementing technical standards with regard to the means for public disclosure of net position in shares, the format of the information to be provided to the European Securities and Markets Authority in relation to net short positions, the types of agreements, arrangements and measures to adequately ensure that shares or sovereign debt instruments are available for settlement and the dates and period for the determination of the principal venue for a share according to Regulation (EU) No 236/2012 of the European Parliament and of the Council on short selling and certain aspects of credit default swaps (OJ L 251, 18.9.2012, pp. 11–18).

Commission Delegated Regulation (EU) No 918/2012 of 5 July 2012 supplementing Regulation (EU) No 236/2012 of the European Parliament and of the Council on short selling and certain aspects of credit default swaps with regard to definitions, the calculation of net short positions, covered sovereign credit default swaps, notification thresholds, liquidity thresholds for suspending restrictions, significant falls in the value of financial instruments and adverse events (OJ L 274, 9.10.2012, pp. 1–15).

See consolidated version.

Commission Delegated Regulation (EU) No 919/2012 of 5 July 2012 supplementing Regulation (EU) No 236/2012 of the European Parliament and of the Council on short selling and certain aspects of credit default swaps with regard to regulatory technical standards for the method of calculation of the fall in value for liquid shares and other financial instruments (OJ L 274, 9.10.2012, pp. 16–17).