Under the European Short Selling Regulation (SSR) uncovered short sales are banned and investment firms are required to track their net short positions and report them to relevant authorities/the public if they breach certain thresholds. Implementing this is already quite a tall order, but things could potentially become even more onerous in light of the requirement to flag short sales in transaction reporting outlined in MiFIR Article 26. As an unintended consequence, might we see a requirement for brokers to aggregate their net position across the whole firm in real-time throughout the day?

Traders may know whether their own desk or account is going short, but how do they know whether the reporting firm in aggregate is going short? Some respondents to the MiFID II/MIFIR discussion paper suggest the short sale flag should be applied per trading book or account – a reasonable proposal considering implementation efforts. But this also implies that transaction reported short sales will not add up to the reported short selling position under SSR.

The short selling flag is a typical example of the data jigsaw that regulators will have to piece together. The vast amount of data collected under EMIR trade reporting, MiFIR transaction reporting and MiFID II commodity position reporting will not always align, but regulators still have to make sense of it when monitoring markets. The challenge ESMA faces as it starts working through all the responses to the consultation on Level 2 is to harmonise as much as possible, certainly a formidable task!