EU shorting rules and global liquidity pools

Christian VoigtLately, ESMA seems to have become more and more of a paper producing monster. One of the latest products from ESMA is a consultation paper on short selling. November 2012 will see the arrival of stricter regulations on short selling. Now ESMA must decide on the technical implementation standards and has issued this consultation paper with a closing date of 13th February. This extremely short review period is in itself an issue, given a recent open letter by seven of Europe’s most influential trade associations regarding ESMA’s extraordinary workload.

The short selling consultation paper talks mainly about three things:

(1) How traders must properly ensure that shares are available for settlement;
(2) When and to whom to report once a short net position breaches certain thresholds; and
(3) How to determine that the principal venue of a share is within the EU and therefore subject to the short selling rules.

Regarding the last point, regulators will need to keep monitoring all shares that are also traded in non-EU states and determine whether the bulk of their liquidity resides within the EU. The current text explicitly mentions that regulators may outsource this monitoring task to a third party. To me, this sounds like something Fidessa could perhaps help with; the Fragulator can tell you with a simple mouse click where trading takes place on a global scale!

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