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Flash info banking & finance | Prohibition of net short positions on the securities of 11 financial institutions

In the framework of the recent law on banking and financial regulation (law of 22 October 2010), the French regulator (Autorité des marchés financiers or AMF) just released a decision aiming at prohibiting net short sales on the financial instruments issued by 11 designated financial institutions.

For these designated institutions, the AMF expressed its intent to go beyond the restrictive regime applicable as of 1 February 2011, which bars short selling, except if the seller is in a position to provide sufficient insurance that the securities subject to short selling will ultimately be duly delivered.

The decision taken by the AMF is founded on the threat of instability on financial markets and is applicable until 26 August, after which a decision of the AMF Board may rule to extend it (for another three months, renewable by ministerial decree).

In its Frequently Asked Questions (FAQ), the AMF pointed that while net short positions taken before 11 August 2011 (10:45pm) are not rendered null and void by the AMF decision, the net short position shall be reduced if it were to increase as a result of the volatility of the securities in question. In addition, the AMF specified that all short selling positions not yet executed and leading to an overall net short position on the above mentioned securities shall be cancelled.

Finally, the AMF included in its decision a clause which aims at avoiding that investors circumvent the decision through trading in derivatives, indexed on – notably – securities of one of the 11 institutions listed in the decision of the AMF. While the AMF purports not to prohibit per se net short positions on index derivatives, it prohibits positions on such derivatives when they create or strengthen an overall net short position on one of the securities issued by the above mentioned 11 institutions.

Link to the decision of the AMF: 
http://www.amf-france.org/documents/general/10109_1.pdf
Link to the FAQ of the AMF: 
http://www.amf-france.org/documents/general/10111_1.pdf

Authors

Picture of Jérome Sutour
Jérôme Sutour
Partner
Paris
Alexandre Marion