UniCredit Hungary GSS would like to draw the attention of its clients to the short selling rules to be followed in Hungary.
Short selling is regulated by EU Regulation No. 236/2012 on short selling (SSR) that prescribes the following requirements:
- All those entering into short sales of shares must be covered by either having borrowed the instruments concerned, have arranged to borrow them; or have an arrangement with a third party who has confirmed that the share has been located i.e. naked short selling in shares is banned;
- All those entering into short sales of sovereign debt instruments must have borrowed the instruments concerned, have an agreement to borrow them, or have an arrangement with a third party who has confirmed that the securities have been located or expects that the trade can be settled when due i.e. naked short selling in sovereign debt is banned;
- All those entering into credit default swaps (CDS) positions related to a sovereign issuer must have an underlying exposure to the risk of default of that sovereign issuer or of a decline in the value of the sovereign debt of that issuer i.e. naked sovereign CDS are banned.
- Central counterparties providing clearing services must ensure that there are adequate arrangements in place for buy-in of shares as well as fines where there is a settlement failure. KELER CCP complies with this requirement.
Mandatory transparency of net short positions:
- Significant net short positions in shares must be reported to the Central Bank of Hungary (CBH) when they at least are equal to 0.2% of company issued share capital and every 0.1% above that;
- Disclosed to the public when they are at least equal to 0.5% of company issued share capital and every 0.1% above that;
- Significant net short positions in sovereign debt should be reported to the CBH when reaching or crossing one of the thresholds published by ESMA for sovereign issuers – notification thresholds.
Notifications by private or institutional investors on short selling positions are sent to the CBH through a dedicated SSR-application. The deadline for such reporting is 15:30 CET the next working day, following the day when the short position has been taken. In addition to this, investors make public announcements via http://kozzetetelek.mnb.hu operated by the CBH.
Reporting in relation to sovereign debt is completed based on the duration adjusted figure of the outstanding amount of sovereign debt of Hungary. Such figures are published by ESMA each quarter for all EU member states, including Hungary.
The SSR provides exemptions for market making activities and authorised primary dealers, prescribing the notification of intent to make use of the exemption to be made to the home authority of the notifying entity (in Hungary the CBH), while the exempted activities might also take place in other jurisdictions outside the supervision of the home authority.
Impact on investors: Investors are required to conclude their transactions in accordance with the short selling rules applicable in Hungary.