Explanation on the new European rules for short selling

Since 1 November 2012 the European short selling regulation is applicable. Short selling is an investment tactic. If you have important short positions on companies or public bodies and these shares or public debt instrument drop in value, you should from now on report this to the Financial Services and Markets Authority (FSMA). You should also report short positions in companies when exceeding certain thresholds.

Investment tactic

Short selling or going short is the sale of financial instruments (shares and bonds) which you do not own yourself when making the transaction. When terminating the transaction - mostly three days later on the stock exchange - you should supply the instruments sold.

There are two variants: the seller can provide for cover beforehand, then it is 'covered' short selling: selling shares without being able to supply them is called 'naked' short selling. In both cases the short seller is speculating on a drop of the share price. You want to sell against a higher price to buy the financial instruments on the market later for a lower price.

The border between speculation and market manipulation is sometimes vague. Since the financial crisis in 2008, naked short selling of financial instruments of certain financial institutions (Dexia NV, Ageas NV (ex-Fortis), KBC Group NV and KBC Ancora Comm. VA) is therefore prohibited. Initially this was a temporary prohibition, but the measure became permanent through the royal decree of 22 September 2009 (Belgian Official Gazette 24 September 2009). This decree only foresees in a reporting and publication obligation for covered short selling.

Regulation (EU) nr. 236/2012 of 14 March 2012

In order to limit the negative effects of short selling, the European Union has introduced regulatory measures. But these measures did not achieve their goals because the prohibition didn't apply in all EU member states and a common regulation was lacking. Therefore the Council of the European Union adopted on 21 February 2012 a Regulation on short selling. This Regulation is applicable in all EU Member States since 1 November 2012.

Reporting obligation and publication obligation of short positions

In Belgium short selling of financial shares is no longer prohibited. As was already the case before 12 August 2011, restrictions apply for short sellers using actions according to the European Regulation. The Regulation contains a 'locate rule' under which persons selling shares without owning or borrowed them should take the necessary actions so it can be supposed that the shares will be supplied in due time.

Investors which have considerable short positions on companies or public bodies and are of the opinion that the shares of public debt instruments will drop in value, should as from now report this to the financial supervisor. In Belgium reportings should be made to the FSMA, Supervision on the financial markets, Mr. Erwin Zeerards, Congresstraat 12-14, 1000 Brussels (fax +32 2 220 59 03). Reportings can be send by e-mail to info.fin@fsma.be, but should be confirmed by mail or by fax.

If your short positions in companies equal or exceed 0,5% of the placed capital, you should make them public. The publication threshold is completed with additional thresholds with an interval of 0.1%. You can consult the overview of the published short positions with daily updates on the FSMA's website (www.fsma.be).