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The FSMA modifies short selling rules

The Financial Services and Markets Authority (FSMA) had decided to modify the rules on short selling shares in Belgian financial institutions[1] as from 13 February 2012, by replacing the interim ban on the holding of net short positions with a reporting obligation for significant net short positions and with the ‘locate rule’.

The ban on holding net short positions in Belgian financial shares, which was intended from the outset to be temporary, had been imposed on 12 August 2011 in consultation with several other European securities regulators, principally members of the Euronext zone. Given the improvement in market conditions, the competent authorities in the countries concerned are currently assessing whether the ban needs to be continued. In the midst of that process, France’s ban expired on 12 February 2012. In reaching its decision, the FSMA has taken into account, among other things, the lower volatility of the markets and a consistent approach within the Euronext zone.

While awaiting the entry into force, on 1 November 2012, of the Regulation of the European Parliament and of the Council of the European Union on short selling and certain aspects of credit default swaps, the short selling of Belgian financials will, however, be subject to different rules inspired directly by the Regulation and enabling a gradual transition from a temporary to a permanent system.

In the new version of the FAQs regarding the rules on short selling financial shares which was published on 13 February on the FSMA website, significant net short positions in Belgian financials are once again subject to a reporting obligation, given that they are no longer prohibited.

As regards “naked” short selling, the restrictions that were in place before 12 August 2011 likewise continue to be in effect, although henceforth they use forms of action that correspond to the aforesaid European Regulation. The Regulation contains a so-called ‘locate rule’, on the basis of which persons who sell shares without possessing or having borrowed them must make certain arrangements to ensure that they may have a reasonable expectation that the shares sold can be delivered in a timely manner. The risk of undesired market disruptions, such as late deliveries, is thereby reduced. 

The FSMA continues to monitor market developments very closely.

[1]     Dexia SA, Ageas NV/SA, KBC Groep NV and KBC Ancora CVA.