Legal Shorts 17.04.20 including ESMA issues positive opinions on short selling bans

ESMA statement on co-ordinated action for Benchmark Regulations external audit requirements

On 9 April 2020, ESMA published a statement regarding a coordinated approach by national competent authorities (NCAs) on the timeliness of fulfilling external audit requirements under the Benchmarks Regulation. ESMA acknowledges the COVID-19 outbreak brings significant challenges for interest rate benchmark administrators and contributors to interest rate benchmarks in relation to the external audit requirements as an increasing number of Member States impose unprecedented national measures to prevent contagion. Administrators and contributors are faced with constraints which may substantially impair their ability to ensure the timeliness of the fulfilment of these external audit requirements.

ESMA therefore, in coordination with NCAs, expects NCAs not to prioritise supervisory actions against administrators and supervised contributors relating to the timeliness of fulfilling those audit requirements where the audits are carried out by 30 September 2020. Furthermore, ESMA encourages NCAs to generally apply a risk-based approach in the exercise of supervisory powers in their day-to-day enforcement of the Benchmarks Regulation in a proportionate manner concerning the timeliness of fulfilling those audit requirements. Nevertheless, where administrators and supervised contributors reasonably anticipate that the fulfilment of those audit requirements will be delayed, they are expected to inform their NCA.

ESMA issues positive opinions on short selling bans

ESMA has issued opinions agreeing to the renewal of the emergency restrictions on short selling and similar transactions by the regulators of Austria, Belgium, France, Greece and Spain. All five NCAs had imposed restrictions in March 2020 which were due to expire in April, and all five decided to renew those restrictions. Following coordination by ESMA, the renewal process has been aligned and the renewal decisions will all be in place until 18 May with the possibility of a further renewal.

ESMA also aimed for further alignment of exemptions applicable to the restrictions which should facilitate the coherent implementation of the restrictions by market participants. All shares admitted to trading on the relevant trading venues for which the NCA is the relevant competent authority, as well as to all related instruments relevant for the calculation of the net short position will be caught and the measures will enter into force between 16 April and 25 April, depending on the country. The restrictions will remain in place until 18 May 2020, unless the risks of a loss of market confidence are reduced and therefore lifted earlier.

ESMA considers that the proposed measures are justified by current adverse events or developments which constitute a serious threat to market confidence and financial stability, and that they are appropriate and proportionate to address the existing threat to market confidence in those five markets.

Deferral of the remaining global initial margin requirements

On 3 April 2020, the Basel Committee on Banking Supervision (BCBS) and the International organization of Securities Commissions (IOSCO) published a joint statement announcing a one-year deferral of the September 2020 and September 2021 phase-ins of the global initial margin requirements for non-centrally cleared derivatives.

Firms with an aggregate average notional amount (AANA) of uncleared derivatives exceeding EUR 50bn will now become subject to the initial margin requirements from 1 September 2021. Similarly, firms with an AANA of uncleared derivatives exceeding EUR 8bn will now become subject to the initial margin requirements from 1 September 2022. These changes have been reflected in the revised BCBS-IOSCO global initial margin standards.

The deferral intends to provide additional operational capacity for impacted firms to respond to the immediate challenges of coronavirus (Covid-19) and facilitate firms’ readiness to comply with the requirements by the revised deadline.



FCA Statement on listed companies and recapitalisation issuances

On 8 April 2020, the FCA published a statement of policy on listed companies and recapitalisation issues during the Covid-19 crisis. The statement sets out measures aimed at assisting companies to raise new share capital while retaining an appropriate degree of investor protection. The FCA also published technical supplements on working capital statements and the modification of general meeting requirements under the Listing Rules which include further details on those measures.

The measures set out in the statement of policy and technical supplements include guidelines for share issues which require a prospectus. The FCA suggests that issuers and their advisors may wish to consider using the new simplified prospectus which was introduced in July 2019, when the new Prospectus Regulation came into force. This form of the prospectus is tailored for secondary issuances and the FCA is encouraging listed companies issuing new equity to recapitalise the company in response to the coronavirus crisis to use this simplified disclosure regime where possible.

The guidance set out in the statement and technical supplements applies from 8 April 2020 and the measures relating to working capital statements and general meeting requirements will apply until the FCA advises otherwise.

You can access the full statement here




ESRB overview of EU financial stability policy measures

At its meeting on 2 April 2020, the ESRB focussed on the consequences of the coronavirus pandemic for the EU’s economy and the financial system. Unlike in the global financial crisis of 2008, this shock is universal across all countries and sectors, although some sectors are more severely affected. The necessary containment measures are adversely impacting economic activity through a fall in domestic and foreign demand, as well as a decline in production, which is in part due to disrupted supply chains. Since the extent and length of the required containment measures remain unknown, uncertainty around the economic impact is likely to persist for some time.

The ESRB published a press release on 9 April 2020, summarising its policy measures in response to the COVID-19 pandemic, in addition to setting up a website which contains a spreadsheet which provides information on the policy measures taken by Member States, EU institutions and national authorities in response to the coronavirus (COVID-19) pandemic. It will be updated on a regular basis and contains information which is collected in cooperation with the European Central Bank, the European Commission, the European Supervisory Authorities and national authorities. It can be accessed here.