On Monday, the European Commission published its report to the European Parliament and the Council on the European Short Selling Regulation (SSR). The European Commission’s report directly responds to a number of observations mentioned in the European Securities and Markets Authority’s (ESMA) technical advice on the evaluation of the SSR, which was released on June 3.
In its report, the European Commission makes the following statements regarding the ESMA recommendations:
- The European Commission considers that, based on the limited data available so far, it can be said that the SSR has had a positive impact in terms of greater transparency of short sales and reduced settlement failures, and a relatively mixed economic impact. There is no compelling evidence of a substantial negative impact of the SSR in terms of reduced liquidity of sovereign CDS. ESMA’s Report does not suggest any major negative economic impacts of the SSR which, in the European Commission’s view, would warrant a revision of the SSR in the short term. Overall, the empirical evidence available shows that the SSR has had some beneficial effects on volatility, mixed effects on liquidity and led to a slight decrease in price discovery.
- Although ESMA has made some recommendations for adjustments to the SSR, notably concerning the locate rule, market making exemption and the power of competent authorities to impose short term bans, ESMA has advised the European Commission to revisit the assessment of the SSR and its implementing texts at a later stage, once more data and greater experience will be available.
- The European Commission is therefore of the view that it is too early, based on available evidence, to draw firm conclusions on the operation of the SSR framework which would warrant a revision of the legislation at this stage. The European Commission will, therefore, continue monitoring the application of the SSR. In order to ensure a smooth functioning of the short selling legal framework, the European Commission considers that a new evaluation of the appropriateness and impact of the SSR, similar in scope to that specified in Article 45 SSR, could be carried out based on more empirical data and evidence and once the competent authorities have accumulated sufficient regulatory experience of applying the SSR. Such an evaluation could be concluded by 2016, i.e. three years after the entry into application of the SSR.