ESMA updates Q&A on the short-selling regulation

The European Securities and Markets Authority published on November 14, 2018 an updated version of its Questions and Answers on the Regulation on Short Selling and Certain Aspects of Credit Default Swaps, in order to promote common supervisory approaches and practices in the application of the regulation.

The new version of the Q&A updates question 4.10 regarding determination of the relevant competent authority for the financial instruments mentioned in point v) of Article 2(1)(j) of the regulation (in particular for shares) following the entry into force of MiFID II and MiFIR. This is no longer governed by Commission Regulation 1287/2006 but Commission Delegated Regulation (EU) 2017/590 on the reporting of transactions to competent authorities.

ESMA also clarifies in the Q&A that it is not the intention of Regulatory Technical Standard 8 (Commission Delegated Regulation (EU) 2017/578 specifying the requirements on market-making agreements and schemes) to prevent market-makers that comply with the requirement to post live two-way quotes of comparable size from adding further liquidity on either side of the order book on a voluntary basis.

The updated Q&A on the Short-Selling Regulation is available in English at

CSSF - precisions on the prohibition of uncovered short selling

On 29 September 2008 the CSSF issued a press release providing precisions on the prohibition of naked short selling in publicly quoted banks and insurance companies. As can be seen from the precisions below, the CSSF prohibition does not cover market transactions that follow a clear hedging intent or market transactions which are necessary for the orderly functioning of the markets.
The following precisions or exemptions apply in light of the general rules and principles set out in the press release dated 19 September 2008:

  • Uncovered (naked) short selling, in this context, means a transaction which results in creating a net short position or increasing any net short position that was held prior to 19 September 2008. Only net short positions (and not gross short positions) are prohibited (provided there is no duration mismatch between the netted positions). The prohibition also covers OTC transactions.
  • The prohibition applies to all uncovered short selling where the underlying assets are shares of credit institutions or insurance undertakings admitted to trading on the regulated market of the Luxembourg Stock Exchange (excluding securities admitted to trading on the EuroMTF).
  • The short selling rules cover not only the shares themselves but all instruments (for instance contracts for differences, options, futures or depository receipts) that give rise to an exposure to the issued share capital of a company.
  • Market makers are generally exempt from the new short selling rules. This exemption covers market makers only when, in the particular circumstances of each transaction, they are acting in that capacity and with the intent of providing liquidity and of exercising genuine market making activities.

As regards Luxembourg market participants, in case they are entering into transactions in respect of securities admitted to trading on any other regulated market, they shall apply the rules as set out by the competent regulator of that regulated market.

CSSF - ban on naked short sales

In a press release of 19 September 2008, the Luxembourg regulator (CSSF) considers that in light of the current market situation, naked short sales are incompatible with the regulatory requirements governing market conduct, in particular where such sales distort or manipulate the market.

The CSSF therefore prohibits market participants from performing this type of short sales where the underlying assets are stocks of a credit institution or insurance undertaking traded on a regulated market, whether on own account or on behalf of clients. When performing such transactions on behalf of their clients, market participants must ensure that the clients are able to deliver the stocks on the settlement date.

The ban comes into force with immediate effect.

In addition, it should be borne in mind that the spreading of false rumours or information constitutes market abuse and is subject to the sanctions provided for in Chapter V of the Law of 9 May 2006 on market abuse.