Before the coming into force of the substantive provisions of the so-called Short Selling Regulation1 on the 1st of November 2012, Malta did not have any rules restricting short selling or requiring disclosure of short positions. From now on, however, harmonised rules apply throughout the EEA, including Malta, which impose notification requirements concerning significant net short positions in shares and sovereign debt and uncovered positions in sovereign credit default swaps (CDSs)2, a disclosure requirement concerning significant short positions in shares, restrictions on uncovered (naked) short selling of shares, and restrictions on uncovered CDS positions in sovereign debt. Although these rules derive from EU Regulations which are directly applicable in the EEA States (i.e. without requiring transposition into national law, as is the case for Directives), Malta has adopted certain measures to ensure their proper implementation.

The Financial Markets Act (Short Selling) Regulations, 2012 (Legal Notice 344 of 2012), which essentially designate the Malta Financial Services Authority ("MFSA") as the competent authority in Malta for the implementation of the Short Selling Regulation, and empower the MFSA to issue "Financial Market Rules" binding on all persons engaged in short selling, and, or who trade in credit default swaps and other financial instruments as maybe specified in such rules.3 The said Regulations also establish that where a person engaged in short selling and, or who trades in credit default swaps contravenes or fails to comply with any provisions of the Short Selling Regulation, the Financial Markets Act (Short Selling) Regulations and any Financial Markets Rules issued thereunder, the MFSA may, by notice in writing and without recourse to a court hearing, impose on such person an administrative penalty not exceeding one hundred and fifty thousand euro (€150,000).

Furthermore, the MFSA has issued Guidance Notes, which purport to provide guidance on the transparency requirements and restrictions regarding (i) shares which are admitted to trading for the first time on a trading venue licensed by the MFSA, such as the Malta Stock Exchange; (ii) sovereign debt issued by the Government of Malta; and (iii) CDSs in relation to sovereign debt issued by the Government of Malta. The Guidance Notes also include the standard forms to be used for notifications to be made to the MFSA; such notifications are to be made in English and may be sent to the MFSA by e-mail.

The Guidance Notes indicate that the notification requirements regarding significant net short positions in shares and sovereign debt and the disclosure requirements in the case of significant net short positions in shares do not apply to market makers and primary dealers falling within the meaning given in the Short Selling Regulation, as further defined in guidance which may be issued by ESMA from time to time, and that application of this exemption requires a specific authorisation from the MFSA.

A dedicated section was created on the MFSA's website for public disclosures of net short positions in shares which are admitted to trading on a trading venue licensed by the MFSA, where the net short position reaches a value equal to 0.5% of the issued share capital of the company concerned and each 0.1% above that.4

Footnotes

1 Regulation (EU) No 236/2012 of the European Parliament and of the Council of 14 March 2012 on short selling and certain aspects of credit default swaps. Detailed rules are laid down in four implementing ("Level 2") measures: Commission Delegated Regulation (EU) No 919/2012 of 5 July 2012 supplementing Regulation (EU) No 236/2012 of the European Parliament and of the Council on short selling and certain aspects of credit default swaps with regard to regulatory technical standards for the method of calculation of the fall in value for liquid shares and other financial instruments; Commission Delegated Regulation (EU) No 918/2012 of 5 July 2012 supplementing Regulation (EU) No 236/2012 of the European Parliament and of the Council on short selling and certain aspects of credit default swaps with regard to definitions, the calculation of net short positions, covered sovereign credit default swaps, notification thresholds, liquidity thresholds for suspending restrictions, significant falls in the value of financial instruments and adverse events; Commission Implementing Regulation (EU) No 827/2012 of 29 June 2012 laying down implementing technical standards with regard to the means for public disclosure of net position in shares, the format of the information to be provided to the European Securities and Markets Authority in relation to net short positions, the types of agreements, arrangements and measures to adequately ensure that shares or sovereign debt instruments are available for settlement and the dates and period for the determination of the principal venue for a share according to Regulation (EU) No 236/2012 of the European Parliament and of the Council on short selling and certain aspects of credit default swaps; and Commission Delegated Regulation (EU) No 826/2012 of 29 June 2012 supplementing Regulation (EU) No 236/2012 of the European Parliament and of the Council with regard to regulatory technical standards on notification and disclosure requirements with regard to net short positions, the details of the information to be provided to the European Securities and Markets Authority in relation to net short positions and the method for calculating turnover to determine exempted shares.

2 The Short Selling Regulation prohibits uncovered positions in sovereign credit defaults swaps. However, the MFSA may decide to suspend restrictions on uncovered positions in CDSs in relation to sovereign debt issued by the Government of Malta, and in such cases a notification to the MFSA would be required when such position reaches or falls below the relevant notification thresholds for sovereign debt.

3 No such Financial Market Rules were issued to date.

4 http://www.mfsa.com.mt/pages/viewcontent.aspx?id=491

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