Notification threshold of net short positions lowered from 0.2% to 0.1%

Threat to the orderly functioning and integrity of the financial markets

On 16 March 2020, ESMA published a decision in which the notification threshold of net short positions was lowered from 0.2% to 0.1% of the issued share capital. ESMA has decided this due to the outbreak of the COVID-19 pandemic which is already having serious effects on the financial markets. Given that the current situation represents a serious threat to the orderly functioning and integrity of the markets and given that short sales can contribute to accelerate price volatility, ESMA has for a period of three months decided to temporarily lower the notification threshold.

Temporary notification threshold

When net position reaches or falls below 0.1% of the issued share capital notification must be given to the NCA, which in Denmark is the Danish FSA (in Danish: Finanstilsynet).

Notification must also be given each 0.1% above the threshold (which for the next three months will be 0.1% instead of 0.2%). By way of example, if a net short position reaches 0.12%, the first notification must be given to the NCA, and if this net short position is subsequently increased to 0.22% a second notification must be given.

The new notification threshold applies only to net positions that reaches or falls below the 0.1% on or after 16 March 2020. Notification to the Danish FSA - or another NCA - regarding the net short position must be made no later than at 3:30 p.m. on the following trading day.

Exceptions 

The temporary additional transparency obligation does not apply to (i) shares that are admitted for trading on a regulated market, but where the principal venue for the trading of the shares is located in a third country (i.e. a country outside of the EEA), (ii) market making activities or (iii) net short positions in relation to the carrying out of a stabilisation under Article 5 of Regulation (EU) No 596/2014 of 16 April 2014 on market abuse. 

Fines

In case the notification to the NCA is given too late, natural or legal persons may be obligated to pay fines to the NCA. A company that has failed for the first time to comply with the notification obligation in Denmark will in our experience often receive a reprimand from the Danish FSA, which is also made public on its website, and the Danish FSA will notify the home country regulator of the company's failure to comply with the notification requirement.