Short Selling Restrictions

As a result of market disruption caused by the COVID-19 pandemic, the regulatory authorities of certain countries have issued short selling restrictions (SSR). A summary of these restrictions is outlined in tables 1 (Europe) and 2 (Asia) at the end of this article. Legislation around these restrictions varies by country and is constantly evolving, so we recommend checking with legal counsel before conducting any short selling.

The following countries in Europe imposed short selling restrictions from 18 March 2020 to 18 May 2020:

Austrian Financial Market Authority (FMA)
Belgian Financial Services and Markets Authority (FMSA)
French Financial Markets Authority (AMF)
Greek Hellenic Capital Market Commission (HCMC)
Italian National Commission for Companies and the Stock Exchange (CONSOB)
Spanish National Securities Markets Commission (CNMV)

The following countries in Asia have imposed short selling restrictions:

South Korean Financial Services Commission (FSC)
Indonesian Stock Exchange (IDX)
Thailand Stock Exchange (SET)

The UK, U.S., Singapore, Hong Kong and Japan have not introduced COVID-19 related short selling restrictions. The UK Financial Conduct Authority (FCA) has implemented restrictions imposed by European countries, but it highlighted its focus “on maintaining open markets that operate with integrity” and noted that “an ability to short sell can contribute to this, including by supporting effective price formation, enhancing liquidity and enabling risk management.”¹

Short selling prohibitions in the European Union (EU) applied to all shares in relevant markets, but generally did not apply to market making activities. This was to allow market makers to hedge their positions, so the exemption did not apply to the activities that a market maker conducts on their own account. The short selling restrictions also apply to derivative instruments (options, swaps, futures, contracts for difference and covered warrants), which under the EU Short Selling Regulation must be included in the calculation of net short positions. In addition, the restrictions generally applied to intra-day trading, even if the investor intends to close the position before close of business on that day. The net short position is the sum of all short positions minus all long positions held in restricted shares and related instruments. Where short selling restrictions are in place, clients should take legal advice when considering short selling, and before selling any of the securities concerned, the investor must ensure that the quantity of securities sold does not create or increase a net short position.

The AMF states that fixed income instruments or instruments that expose the creditworthiness of any share issuers (such as credit default swaps) are not taken into account. It advises that if a fund manager acts on behalf of multiple funds, the calculation of the net short position be made on a fund-by-fund basis (rather than at the manager level). The AMF also advises that “net short positions taken before the publication of the Decision are not affected.” It also states “that investors holding a net short position in relation to one of the securities concerned through expiring derivatives are allowed to roll forward their position, even if such a rolling results in the creation of a net short position with a further expiry date, provided that the net short position so created does not exceed the one held previously.”²

The restrictions generally apply to index-related instruments, if the shares covered by the prohibitions exceed the respective defined thresholds expressed as a percentage of their index weighting. However, this is a complex area and clients should take legal advice when considering trading indices. For example, the AMF advises that under certain circumstances, “an investor who holds a long position of shares strongly correlated to an index such as the CAC 40, may hedge its general market risk through a CAC 40 derivative even if its portfolio includes only a limited number of CAC 40 shares or even none…In addition, the creation or increase of net short positions through indexed financial instruments or baskets of shares are excluded from the ban when the shares subject to the Decision represent less than 50% of the composition of the index or basket.”³

BaFin, the German Federal Supervisory Authority, confirmed that, “Instruments related to the indices Euro STOXX 50®, STOXX® Europe 600, MSCI Europe and MSCI EMU are (currently) exempt from the short-selling prohibitions…This is because the restrictions apply to index-related instruments, if the shares covered by the prohibitions exceed the respective defined thresholds expressed as a percentage of their index weighting. This is not the case for instruments related to Euro STOXX 50®, STOXX® Europe 600, MSCI Europe and MSCI EMU.”⁴

For example, the individual country weightings that make up the EURO Stoxx index did not exceed each country’s index weighting restriction, as illustrated in the tables below, which explain why the index was exempt from short-selling prohibitions. This status needed to be monitored as country index weightings and restriction thresholds fluctuate.

Euro Stoxx 50: Index Restrictions on March 18, 2020

Serial	Country	Weighting	Index Restriction on March 18, 2020	Breach?
1	France	38.8%	50%	No
2	Germany	31.7%	N/A	No
3	Netherlands	11.2%	N/A	No
4	Spain	9.5%	50%	No
5	Italy	5.2%	20%	No
6	Belgium	1.8%	20%	No
7	Ireland	1.0%	N/A	No
8	Finland	0.8%	N/A	No

Euro Stoxx 50: Index Restrictions on April 17, 2020 Following Decision by the Greek and Belgian Authorities to Harmonise Their Index Restrictions to 50%⁵

Serial	Country	Weighting	Index Restriction on April 17, 2020	Breach?
1	France	38.8%	50%	No
2	Germany	31.7%	N/A	No
3	Netherlands	11.2%	N/A	No
4	Spain	9.5%	50%	No
5	Italy	5.2%	20%	No
6	Belgium	1.8%	50%	No
7	Ireland	1.0%	N/A	No
8	Finland	0.8%	N/A	No

Note the EURO Stoxx index restrictions are no longer applicable from May 18, 2020 at 23:59, following the suspension of the short selling bans by the national competent authorities of Austria, Belgium, France, Greece, Spain and Italy.

On March 16, 2020, the European Securities and Markets Authority (ESMA) temporarily amended the threshold for notifying net short positions to competent authorities under the SSR from 0.2% of issued share capital to 0.1%. This measure remains in force until June 16 and can be renewed. The FCA had to complete systems changes before implementing this rule, and on March 31, 2020, it confirmed that the required changes had been made. Notifications at the lower threshold should be submitted from April 6, 2020, and firms are not required to amend and resubmit notifications submitted between March 16, 2020 and April 3, 2020.⁶

Summary of the Short Selling Restrictions Imposed in Europe

Country	SSR	Index Restriction	Dates of Restriction	Comments
Austria (FMA)	March 18, 2020 Ban on the short selling of all shares on the Vienna Stock Exchange, and those that fall under the supervisory authority of the FMA; market making activities are exempt.	50%	March 18 2020 - April 18, 2020	FMA’s decision on can be found here. The measure does not apply to: Market making activities Index-related instruments or baskets of financial instruments, provided the shares affected by the ban do not represent more than 50% of the index.
Austria (FMA)	April 16, 2020 Ban extended until May 18, 2020 and amended to apply to the creation or of increase of net short positions.	50%	April 16, 2020 - May 18, 2020	Note that the original short selling ban on March 18, 2020 related to every individual transaction. The amended regulation now relates to establishing new net short positions or increasing existing net short positions, with effect from April 16, 2020. The amended and extended FMA ban can be found here.
Austria (FMA)	May 18, 2020 Non-renewal of the short selling ban, which expired on 18 May 2020 at 23:59	N/A	Restriction suspended on May 18, 2020 at 23:59.	The non-renewal of the FMA ban can be found here.
Belgium (FMSA)	March 18, 2020 Ban on creation or increase of short net positions on all shares on a Belgian trading venue; market activities are making exempt.	20%	March 18, 2020 - April 17, 2020	FSMA’s decision on can be found here. The original ban on March 18, excluded market making activities and index-related instruments or baskets of financial instruments, as far as the shares covered by the ban did not represent more than 20% of the index or basket weight. The regulation amended on April 17, 2020 increased the index restriction to 50% and added the following exclusions: when the investor who acquires a convertible bond has a delta-neutral position between the equity component of the convertible bond and the short position taken to cover that component, and where the creation of, or increase in, the short position in shares is hedged by a purchase that is equivalent in terms of proportion on subscription rights.
Belgium (FMSA)	April 16, 2020 Ban extended to May 18, 2020 and index restriction raised to 50%.	50%	April 17, 2020 - May 18, 2020	The amended and extended FSMA ban on April 17, 2020 can be found here.
Belgium (FMSA)	May 18, 2020 Non-renewal of the short selling ban, which expired on 18 May 2020 at 23:59	N/A	Restriction suspended on May 18, 2020 at 23:59.	The non-renewal of the FMSA ban can be found here.
France (AMF)	March 18, 2020 Ban on creation or increase of short net positions on all shares on a French trading venue’ market making activities are exempt.	50%	March 18, 2020 – April 16, 2020	AMF’s decision on can be found here. The measure does not apply to: Market making activities Index-related instruments or baskets of financial instruments, provided the shares affected by the ban do not represent more than 50% of the index. Delta-neutral positions between the equity component of the convertible bond and short position taken to cover that component The same exemption applies to short positions in a restricted share aimed at covering the risk stemming from subscription rights previously purchased. To determine the corresponding number of shares, the investor must calculate and apply the relevant delta
France (AMF)	April 16, 2020 Ban extended to May 18, 2020.	50%	April 16, 2020 – May 18, 2020	The extended AMF ban can be found here.
France (AMF)	May 18, 2020 Non-renewal of the short selling ban, which expired on 18 May 2020 at 23:59	N/A	Restriction suspended on May 18, 2020 at 23:59.	The non-renewal of the AMF ban can be found here.
Greece (HCMC)	March 18, 2020 Ban on creation or increase of short net positions on all shares on the ASE; market making activities are exempt.	20%	18 Mar 2020 – 24 Apr 2020	HCMC’s decision can be found here. The measure implemented on 18 March 2020 excluded: Index-related instruments, provided the shares affected by the ban do not represent more than 20% of the index or basket weight. Market making activities when the short selling activities are conducted for hedging purposes.
Greece (HCMC)	April 16, 2020 Ban extended to May 18, 2020 and index restriction raised to 50%.	50%	April 16, 2020 – May 18, 2020	The amended regulation announced on April 15, 2020 increased the index restriction to 50%. The amended and extended HCMC ban can be found here.
Greece (HCMC)	May 18, 2020 Non-renewal of the short selling ban.	N/A	Restriction suspended on May 18, 2020 at 23:59	The ESMA announcement of non-renewal of the HCMC ban can be viewed here.
Italy (CONSOB)	March 18, 2020 Ban on creation or increase of short net positions on all the traded shares on the Italian regulated market (including intra-day positions); market making exempt. Consob did not harmonise the index restrictions to 50% on April 17, 2020 (with the Greek and Belgian authorities), so the Italian index restrictions remain at 20%.	20%	March 18, 2020 – June 18, 2020	CONSOB’s decision can be found here. The ban does not apply to: The activity of market making, provided that the entity performing the market making activity is included in the list published by ESMA. The trading of index-related instruments, provided that the banned shares do not represent more than 20% of the index weight. When the short position is aimed to exclusively cover the risk stemming from the equity component of convertible bond previously purchased. When the short position is aimed to exclusively cover the risk stemming from subscription rights previously purchased.
Italy (CONSOB)	May 18, 2020 Early termination of the ban on May 18, 2020 at 23:59	N/A	Early termination of the ban on May 18, 2020 at 23:59	The ESMA announcement of the early termination of the CONSOB ban can be viewed here.
Spain (CNMV)	March 18, 2020 Ban on creation or increase of short net positions on all shares on the Spanish trading venues; market making exempt.	50%	March 17, 2020 - April, 17 2020	CNMV’s decision can be found here. The following transactions are excluded from the ban: Transactions undertaken by market makers in accordance with Articles 2.1.k and 17 of the Short Selling Regulation. The creation of, or increase in, net short positions when the investor who acquires a convertible bond has a delta-neutral position between the equity component of the convertible bond and the short position taken to cover that component. The creation of, or increase in, net short positions where the creation of, or increase in, the short position in shares is hedged by a purchase that is equivalent in terms of proportion on subscription rights. The creation of, or increase in, net short positions through index-related instruments or baskets of financial instruments, composed by a majority of shares excluded from the ban.
Spain (CNMV)	April 16, 2020 Ban extended from April 18, until May 18, and may be extended for renewable periods not exceeding three months.			The CNMV ban, which was announced on April 15, 20 can be found here.
Spain (CNMV)	May 18, 2020 Non-renewal of the short selling ban, which expired on 18 May 2020 at 23:59.	N/A	Restriction suspended on May 18, 2020 at 23:59	The non-renewal of the CNMV can be found here.

Summary of the Short Selling Restrictions Imposed in Asia

Country	SSR	Dates	Comments
Indonesia (IDX: Indonesia Stock Exchange)	March 2, 2020 Ban on short selling transactions	March 2, until further notice	IDX’s decision can be found here.
South Korea (FSC)	March 16, 2020 Ban on stock short selling in KOSPI, KOSDAQ and KONEX for six months	March 16 – September 15	FSC’s decision can be found here.
Thailand (SET: Stock Exchange of Thailand)	March 13, 2020 Tightened short selling to trade only the price higher than the last trading price (uptick) effective since the afternoon trading session of March 13, 2020.	March 13 – June 30	SET’s decision can be found here.
Thailand (SET: Stock Exchange of Thailand)	March 18, 2020 Further tightening measures announced on March 18, 2020 to adjust the circuit breaker (temporarily halt in trading) rule, effective from March 18, 2020 and lasting no longer than June 30, 2020.	March 18 – June 30

Sources
¹https://www.fca.org.uk/news/statements/statement-uk-markets
²https://www.amf-france.org/sites/default/files/2020-04/2020-04-15-faq-v4-maj-publie-le-15-avril_0.pdf
³https://www.amf-france.org/sites/default/files/2020-03/2020-03-26-faq-v3-maj-publie-le-26-mars_0.pdf
⁴https://www.bafin.de/SharedDocs/Veroeffentlichungen/EN/Meldung/2020_Corona /meldung_2020 _03_19_corona_virus3_Leerverkaufsverbote_en.html
⁵https://www.stoxx.com/document/Bookmarks/CurrentFactsheets/SX5GT.pdf
⁶https://www.fca.org.uk/markets/short-selling/statement-short-selling-bans-and-reporting

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