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COVID-19 - Measures of the Austrian Financial Market Authority and the European Securities and Markets Authority

The coronavirus is currently keeping the world from breathing easy – unfortunately in every sense of that expression. Within short time, the virus has reached Europe and not least Austria. Cases of the disease are increasing at an enormous rate. All this does not remain without influence on the economy and thus also on the financial markets and their participants. For this reason, the Austrian Financial Market Authority (“FMA”) has decided on a drastic measure: a temporary ban on short sales of certain financial instruments. FMA would have preferred an EU-wide and uniform measure agreed by the European Securities and Markets Authority (“ESMA”), but as the Member States are currently affected by the corona crisis to a too different extent, no agreement has yet been reached on such a uniform measure. However, ESMA, in close cooperation with the national supervisory authorities, has also reviewed the current situation and issued a number of recommendations.

Ban on short selling by the FMA (updated)

In the current exceptionally volatile global and Austrian market environment, concentrated speculative short selling can lead to considerable risks, have a rapid negative impact on the confidence of investors, and thus cause considerable disadvantages for the financial market.

For this reason, FMA has issued a regulation prohibiting short sales of shares, (initially) regardless of whether these short sales are made on or off a trading venue. This includes both entering into new short sales and increasing existing short sales positions. All shares that are admitted to the Official Trading segment (Amtlicher Handel) on the Vienna Stock Exchange (Wiener Börse) and fall under the competence of the FMA as supervisory authority are covered. The only exceptions are transactions in the function of market maker and certain transactions in financial instruments that relate to indices or to a basket of securities that replicates an index.

This ban entered into force on 18 March 2020 and has initially been limited for one month. Therefore, the regulation would have expired at the end of 18 April 2020. However, the regulation may be repealed or extended earlier, depending on market developments because of the COVID 19 pandemic. FMA has exercised this option by extending the ban for a further month (i.e., until 18 May 2020). The regulation has also been amended so that

  • shares whose principal place of trading is in a third country are not subject to the prohibition.
  • it is now based on a ban on net short positions and no longer on a ban on short sales.
  • the ban is eased. Whereas previously short sales were prohibited with regard to each individual transaction, the ban will now only prohibit entering into new net short positions or increasing existing net short positions.
     

EU-wide lowering of the reporting threshold for short selling by ESMA

For shares listed on a regulated market within the EU, the reporting requirement for holders of net short positions has been reduced from 0.2% to 0.1% of the issued nominal capital. This transparency measure is designed to ensure the proper functioning of EU markets, financial stability and investor protection and applies to all natural and legal persons, whether they are established inside or outside the EU. However, the measure does not apply to shares admitted to trading on a regulated market if the main place of trading for the shares is in a third country, nor to market-making or stabilisation activities. The new reporting threshold entered into force on 16 March 2020 and is valid for three months.

Further actions by ESMA in relation to COVID-19

Following a Board of Supervisors discussion examining the market situation and contingency measures taken by supervised entities, ESMA is making the following recommendations to financial market participants:

Business Continuity Planning

All financial market participants, including infrastructures should be ready to apply their contingency plans, including deployment of business continuity measures, to ensure operational continuity in line with regulatory obligations.

Market disclosure

Issuers should disclose as soon as possible any relevant significant information concerning the impacts of COVID-19 on their fundamentals, prospects or financial situation in accordance with their transparency obligations under the Market Abuse Regulation.

Financial Reporting

Issuers should provide transparency on the actual and potential impacts of COVID-19, to the extent possible based on both a qualitative and quantitative assessment on their business activities, financial situation and economic performance in their 2019 year-end financial report if these have not yet been finalised or otherwise in their interim financial reporting disclosures.

Fund Management

Asset managers should continue to apply the requirements on risk management and, react accordingly.

Securities Finance Transactions

ESMA has issued a public statement to ensure coordinated supervisory actions on the application of Securities Finance Transactions Regulation (“SFTR”), in particular, on the requirements regarding the reporting start date, as well as the registration of Trade Repositories (“TRs”). ESMA expects competent authorities not to prioritise their supervisory actions towards entities subject to Securities Finance Transactions (“SFT”) reporting obligations from 13 April 2020 until 13 July 2020. ESMA also expects TRs to be registered sufficiently ahead of the next phase of the reporting regime (i.e. 13 July 2020) for credit institutions, investment firms, CCPs and CSDs and relevant third-country entities to start reporting as of this date.

Further monitoring of the current situation

ESMA, in coordination with the competent authorities, continues to monitor developments in financial markets as a result of the COVID-19 situation and is prepared to use its powers to ensure the orderly functioning of markets, financial stability and investor protection.

 

Please note: This newsletter merely provides general information and does not constitute legal advice of any kind from Binder Grösswang Rechtsanwälte GmbH. The newsletter cannot replace individual legal consultation. Binder Grösswang Rechtsanwälte GmbH assumes no liability whatsoever for the content and correctness of the newsletter.



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