28 May 2015

44975

Retired Member

905Posts 2,937,442Views 1,191Comments

Is it that time already?

19 June 2013  |  2968 views  |  0

It’s a little over a year since the introduction of European Short Selling regulation and already it’s time for the European Commission to prepare its review. With its report due by the end of this month, the Commission has asked ESMA to provide some technical advice. Not surprising to practitioners, but maybe to politicians, ESMA observed mixed effects on liquidity and a slight decrease in price discovery related to short selling bans. In a separate paper, the Spanish regulator concluded that the ban on short selling “seems to be empirically associated with securities markets functioning worse”.

These results only strengthen the argument for abandoning short selling bans altogether. But, since this is unlikely, we’ll have to settle for some minor adjustments within the regulation to make day-to day operations as workable as possible. For example, ESMA has suggested:

• allowing market makers in OTC traded instruments to benefit from the short sell exemption
• allowing internal locate arrangements within the same legal entity

Unfortunately ESMA insists on retaining some of the more cumbersome rules, including the requirement to include indices when calculating net positions. Investors holding an ETF based on the MSCI World Index will still need the daily weightings of each of the roughly 1,600 constituents in order to work out their net position in each European stock. If they use that ETF to take a position on a broader market movement, this is just a pointless exercise.

It’s not certain when these adjustments will be implemented but, if the MiFID II and MAD II review processes are anything to go by, we could be in for the long haul as far as short selling is concerned. We’ll be sure to keep you posted.

 

Blog updated: 28 May 2015 01:34:33
TagsTrade executionRisk & regulation

Comments: (0)

Comment on this story (membership required)
Log in to receive notifications when someone posts a comment

Latest posts from Retired

Banking on biometrics

17 May 2015  |  1514 views  |  1  |  Recommends 0 TagsSecurityInnovation

Flagging on the road to transparency

27 April 2015  |  3233 views  |  0  |  Recommends 0 TagsTrade executionRisk & regulation

Left in the dark

26 March 2015  |  2754 views  |  0  |  Recommends 1 TagsTrade executionRisk & regulation

Holding a steady course

12 March 2015  |  2624 views  |  0  |  Recommends 0 TagsTrade executionRisk & regulation

Analysis dialysis

24 February 2015  |  1589 views  |  0  |  Recommends 0 TagsRetail bankingInnovation

Retired's profile

job title
location
member since 2014
Summary profile See full profile »

Retired's expertise

What Retired reads
Retired writes about

Who's commenting on Retired's posts

Noel Peatfield
Karim Maalouf
Ketharaman Swaminathan
Sreeram Yegappan
AMIT GARG
Tony Wenzel
Melvin Haskins