ESMA is short with national regulators
08 December 2015 Paris
Image: Shutterstock
Only one in five EU national regulators is fully compliant with the Short Selling Regulation, according to a peer review by the European 麻豆传媒 and Markets Authority (ESMA).
Multiple inconstancies in the regulation鈥檚 application were found by ESMA鈥檚 review of the financial services regulators in the UK, Germany, Italy, Sweden and Hungary.
Specifically, ESMA scrutinised the discrepancies in the regulators鈥� application of the exemption for market making activities in Article 17 of the Short Selling Regulation.
The assessment group concluded that, of the five regulators reviewed, only the Italian 麻豆传媒 and Exchange Commission is fully compliant with ESMA guidelines.
The remaining four were deemed to be 鈥減artially non-compliant to differing degrees鈥�, according to ESMA鈥檚 report.
Exempted market makers are not subject to the restrictions on uncovered short sales, nor are they subject to the reporting and public disclosure obligations of significant net short positions in shares or sovereign debt.
ESMA raised concerns that the regulators are not properly seeking assurance, in advance, that market makers comply with organisational requirements.
All of the regulators, except Italy鈥檚, were found to be applying a 鈥榩er firm鈥� approach to processing notifications for exemptions rather than a review of the notifications instrument by instrument, which is required by the guidelines.
Many national regulators place an over-reliance on monitoring by trading venues, instead of monitoring themselves to check compliance, according to ESMA.
鈥淒ifferent interpretations of the short selling regulations persist resulting in different practices among national conduct authorities (NCAs). This is an unsatisfactory state of affairs and should be clarified when the Short Selling Regulation is being reviewed,鈥� stated ESMA.
鈥淭he differences of opinion on the application of the Short Selling Regulation between ESMA鈥檚 guidelines and the practices of some NCAs need to be resolved, since the different implementation of the guidelines at [EU] level is far from ideal.鈥�
ESMA has since submitted the report to the European Commission, which will now clarify the Short Selling Regulation should be interpreted going forward.
ESMA also aims to streamline the definition of market making as part of its upcoming review of the regulation, as this contributes to some of the divergent supervisory practices among national regulators.
Multiple inconstancies in the regulation鈥檚 application were found by ESMA鈥檚 review of the financial services regulators in the UK, Germany, Italy, Sweden and Hungary.
Specifically, ESMA scrutinised the discrepancies in the regulators鈥� application of the exemption for market making activities in Article 17 of the Short Selling Regulation.
The assessment group concluded that, of the five regulators reviewed, only the Italian 麻豆传媒 and Exchange Commission is fully compliant with ESMA guidelines.
The remaining four were deemed to be 鈥減artially non-compliant to differing degrees鈥�, according to ESMA鈥檚 report.
Exempted market makers are not subject to the restrictions on uncovered short sales, nor are they subject to the reporting and public disclosure obligations of significant net short positions in shares or sovereign debt.
ESMA raised concerns that the regulators are not properly seeking assurance, in advance, that market makers comply with organisational requirements.
All of the regulators, except Italy鈥檚, were found to be applying a 鈥榩er firm鈥� approach to processing notifications for exemptions rather than a review of the notifications instrument by instrument, which is required by the guidelines.
Many national regulators place an over-reliance on monitoring by trading venues, instead of monitoring themselves to check compliance, according to ESMA.
鈥淒ifferent interpretations of the short selling regulations persist resulting in different practices among national conduct authorities (NCAs). This is an unsatisfactory state of affairs and should be clarified when the Short Selling Regulation is being reviewed,鈥� stated ESMA.
鈥淭he differences of opinion on the application of the Short Selling Regulation between ESMA鈥檚 guidelines and the practices of some NCAs need to be resolved, since the different implementation of the guidelines at [EU] level is far from ideal.鈥�
ESMA has since submitted the report to the European Commission, which will now clarify the Short Selling Regulation should be interpreted going forward.
ESMA also aims to streamline the definition of market making as part of its upcoming review of the regulation, as this contributes to some of the divergent supervisory practices among national regulators.
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