Answer given by Ms McGuinness on behalf of the European Commission
In 2021, the EU lowered the notification threshold for net short positions under the Short Selling Regulation (SSR) from 0.2% to 0.1% of issued share capital for the notification made to national supervisors.
This decision was taken in order to increase supervisors’ visibility of the evolution of net short positions and thereby improve their ability to conduct market oversight against the backdrop of COVID-related market turmoil.
Various explanations for downward spirals in share prices can be provided, such as fire sales, exogeneous shocks or market failures in general.
However, these findings do not put into question that the liquidation of short positions can also influence the direction of market prices for shares.
The European Securities and Markets Authority has assessed the short selling ban imposed by six authorities during the 2020 COVID-19 related market stress.
While noting a deterioration of liquidity for the shares concerned, the study showed that ‘curbing short selling activity with the purpose of avoiding disorderly downward price spirals appears to have contributed to a reduction in volatility for banned shares’.
The objective of the public disclosure regime is to ensure market transparency with respect to net short positions, without compromising market efficiency.
When compared to a situation where net short positions would be kept secret, such public disclosure can have a disciplinary effect on corporate management and help detect corporate fraud.
The Commission closely monitors market developments in relation to short selling and will draw the appropriate conclusions if the EU SSR needs to be reviewed.