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The FSMA modifies short selling rules

The Financial Services and Markets Authority (FSMA) modifies the rules governing short selling of financial shares. The decision to do so was taken after consultation with the other members of ESMA, the European Securities and Markets Authority[1].

One of the aims of the measure is to limit the possibility of making a profit by disseminating misleading information. The measure also ensures a uniform approach to this matter, given the close inter-linkage between some European financial markets.

"The FSMA has taken this decision in the light of the high level of volatility that financial markets are currently seeing, and out of a concern for consistency with the actions of other regulators in the Euronext zone, even if the current rumours do not specifically affect the financial securities that are listed on Euronext Brussels," noted Jean-Paul Servais, Chairman of the FSMA.

The decision concerns the following elements:

  1. The Royal Decree of 23 September 2008 introduced measures relating to uncovered transactions (in shares or derivatives) executed on Euronext Brussels.

    Those measures contain a ban on uncovered transactions ("naked shorting") and an obligation to publish, among other places on the FSMA's website, any net economic short position in excess of 0.25% of the share capital of a financial institution to which these measures apply (Ageas, Dexia, KBC Group and KBC Ancora).

  2. As from 12 August 2011, the notion of "uncovered transactions" is extended so that coverage with borrowed shares can no longer be considered full coverage[2]. For this reason, it is no longer merely "naked shorting" that is prohibited, but also "covered shorting".

    Therefore, from that date onward, it is prohibited to take a net economic short position by any means whatsoever, or to extend such a position to the shares of a financial institution referred to in the Royal Decree of 23 September 2008.

  3. Existing net economic short positions do not fall within the scope of this ban, but they may not be increased. The existing disclosure obligations remain in force, including for these positions.

The FSMA recalls, moreover, that the dissemination of misleading information may constitute a breach that is subject to sanctions; the same applies to one who profits from such dissemination.

[1]     Cf. statement published by ESMA.

[2]     The "Questions and answers about the short selling of securities" have therefore been modified to reflect this.