Prohibition of uncovered short sales

The prohibition applies to uncovered short sales in shares and sovereign debt, and to uncovered sovereign credit default swaps (CDSs; Article 12 et seq. of the EU Short Selling Regulation).

The prohibition on uncovered short sales in shares applies to all shares that have their principal trading venue within the EU (Article 2 (1) of the EU Short Selling Regulation). The European Securities and Markets Authority (ESMA) publishes a list of exempted shares under the short selling legal framework on its website.

Uncovered short sales of sovereign debt issued by an EU Member State, the Union or other sovereign issuers are also prohibited (Article 2 (1)(d) of the EU Short Selling Regulation).

In addition, entering into uncovered sovereign CDSs is prohibited (Article 14 of the EU Short Selling Regulation).

Short selling is only permitted if cover is in place at the time the short sale is made. For further information, including details of when cover is deemed to be in place, see also BaFin’s FAQ Ban on uncovered short sales.

Transparency requirements for net short positions

There is a two-tier transparency system for net short positions in shares. In the event of a net short position reaching or falling below the relevant thresholds, the net short position must be notified to the competent national authority (Articles 5 and 6 of the EU Short Selling Regulation). The first notification must be made when the net short position reaches 0.1% of the issued share capital of the company concerned (first tier; see section below entitled “Electronic notification procedure”). If the net short position reaches 0.5% of the issued share capital, it must not only be notified to BaFin but must also be published in the Federal Gazette (Bundesanzeiger) (second tier). In Germany, net short positions are published exclusively in the Federal Gazette.

A notification obligation applies when net short positions in sovereign debt reach or fall below certain thresholds (Article 7 of the EU Short Selling Regulation). There is no publication requirement.

Electronic notification procedure

Net short positions must be notified to BaFin using the MVP Portal.

The electronic notification procedure to be used is set out in greater detail in the German Regulation on Net Short Positions (Netto-Leerverkaufspositionsverordnung – NLPosV; only available in German). Spätestens bei Abgabe der ersten Mitteilung sind daher folgende Schritte notwendig:

1. Registration on BaFin’s Reporting and Publishing Platform (MVP Portal)
2. Registration for the Net Short Positions specialised procedure
3. Submission of notification using the specialised procedure

Detailed instructions on how to use the electronic notification procedure are given on BaFin’s MVP Portal and in the MVP Portal User Manual.

Additional information is also available in BaFin’s Frequently asked questions on notification and publication requirements.

Information on the procedure to be used for publications of net short positions is provided in the Federal Gazette.

Exemption for market makers and primary dealers

There is an exemption from the restrictions on uncovered short positions and from the transparency requirements for market making activities and primary dealer operations (Article 17 of the EU Short Selling Regulation). The competent authority must be informed in writing of the intention to make use of the exemption at the latest 30 calendar days in advance.

BaFin has published an updated version of its Guidance Notice on the scope of the exemption and the format to be used for notifications of the intent to pursue market making activities and primary dealer operations in accordance with Article 17 of the EU Short Selling Regulation.

Additional details on the nature, scope and format of the notification of intent are contained in the Short Selling Notification Regulation (Leerverkaufs-Anzeigeverordnung – LAnzV; only available in German). Further information can also be found in BaFin’s Frequently asked questions on the exemption for market makers and primary dealers (only available in German).