The EU Short Selling Regulation (SSR) introduced a private and public notification regime for investors who hold net short positions in certain financial instruments.
End of the transition period
The EU SSR and the Level 2 regulation (regulation EU 918/2012) have been converted into domestic law and amended by the Short Selling (Amendment) (EU Exit) Regulations 2018 following the UK’s withdrawal from the EU.
The Binding Technical Standards adopted under the EU SSR as at the end of the transition period have also been converted into UK law and apply as amended by the Technical Standards (Short Selling) (EU Exit) Instrument 2019.
ESMA Guidelines and Q&A documents have not been incorporated into UK law.
ESMA Guidelines and Q&A documents adopted under the SSR should be treated in accordance with our general approach to EU non-legislative materials. Generally, firms should continue to follow and have regard to such materials to the extent that they are relevant under UK SSR.
We published our Primary Market Bulletin 21, 24 and 32 in which we advise market makers of changes to the regulatory obligations under UK SSR. PMB 21 and 32 are particularly important for firms using the market maker exemption under the SSR, as they explain the key conditions for the exemption and equivalence of EEA regimes.
Exemptions for market makers and authorised primary dealers under the UK SSR
Under the UK SSR, there are certain exemptions for market-making activities and primary market operations.
This means certain firms don’t have to disclose net short positions – both private and public - they may have in financial instruments admitted to trading on UK trading venues.
These exemptions also apply to requirements relating to entering into uncovered short positions in shares, sovereign debt and sovereign credit default swaps.
It’s important to note that you can’t automatically use these exemptions and they are limited – you can only be exempt when undertaking market-making activities and you can’t use them when carrying out proprietary trading.
The exemption must also be applied to specific instruments.
See more information in our revised note on the UK notification process for market makers and authorised primary dealers (PDF).
Requirements for the market making exemption
The UK SSR requires:
- Any firm wishing to use the exemption for market-making activities must be a member of a UK trading venue (unless an equivalence decision has been made) and notify us of their intention to use the market maker exemption 30 days ahead of its intended use.
- Those firms that have already notified the use of the exemptions and are members of a UK trading venue will be able to continue using the exemption only for instruments traded on UK trading venues.
Notifications made to us for instruments traded in the EU will no longer be valid in the EU.
Equivalence of EEA regimes
The Treasury has made equivalence decisions in respect of the European Economic Area (EEA) states across a number of financial services areas, including the exemption for market making activities under Article 17 of the UK SSR.
Under this decision:
- EEA firms that have not previously submitted a notification for a market maker exemption under UK SSR can now do so without needing to be a member of a UK trading venue provided they are a member of an EEA trading venue.
- To benefit from this exemption, EEA firms should notify the FCA 30 days before they intend to do so. If EEA firms wish to use the exemption from January 2021, they should notify us 30 days before the end of the transition period.
EEA firms that joined a UK trading venue and notified us previously, don’t need to take any further action.
Notify us to use exemption
You must notify us that you are intending to use the exemption 30 days before you intend to do so.
When notifying us that your firm intends to use this exemption regarding a financial instrument, you must use our forms (see below) and provide certain evidence.
To notify us, please send the relevant forms and further information to [email protected].
We will contact you before the 30-day period has expired to confirm whether we will prohibit the use of the exemption or not.
Notifier exemption forms and annexes
Notifiers intending to use the exemptions should use the relevant form and appropriate annexes.
- SSR-1: Form for market makers exemption notification (DOC)
- SSR-1: Annexes for market makers exemption notification (XLS)
We expect that all market maker exemption notifications will include the SSR-1 form and a list of instruments that includes at least the information in Annex I-A and/or I-B.
The annexes may be used as follows:
- If the notifier is registered as a market-maker at a UK trading venue, it can use Annex I-A to list relevant financial instruments for which it is registered to make markets.
- If the notifier is not registered as a market maker at any particular venue, it should use Annex I-B to list relevant instruments for which it is conducting or intends to conduct market-making activities that fall within Article 2(1)(k) of UK SSR.
- The notifier can use Annex II to list the relevant trading venues of which it is a member.
- The notifier can use Annex III to provide additional information.
Authorised primary dealers
- SSR-2: Form for authorised primary dealers exemption notification (DOC)
- SSR-2: Annexes for authorised primary dealers exemption notification (XLS)
We expect that all authorised primary dealers' exemption notifications will include the SSR-2 form and Annex I.
The annexes may be used as follows:
- Annex I to provide information on the UK sovereign debt for which it intends to use the exemption.
- Annex II for relevant supporting documentation.
Prohibition from exemption
We can prohibit you from using the exemption if it believes your firm does not satisfy the conditions of the exemption.
We can also stop you using it at any subsequent time if it considers that your firm no longer meets the conditions of the exemption.
ESMA has previously consulted on and published guidelines for market maker exemptions (PDF).
ESMA Guidelines adopted under the SSR should be treated in accordance with our general approach to EU non-legislative materials. Generally, firms should continue to follow and have regard to such materials to the extent that they are relevant under UK SSR.
Third-country market equivalence
Under the UK SSR, the Treasury may deem the legal and supervisory framework of a third country market as equivalent in order to apply the exemption (Article 17(2)).
In November 2020, Treasury made an Equivalence Decision in Relation to EEA Regimes. We will continue updating this section to reflect further decisions made.
List of market makers and authorised primary dealers using the exemption
We publish a list of market makers and authorised primary dealers who are using the exemption when undertaking market-making activities in certain financial instruments admitted to trading in the UK.
This list is updated regularly as new firms notify us of the use of the exemption.