Short selling

Short selling involves the sale of a security that the seller does not own at the time the sale takes place. Instead, the seller has borrowed, or ensured that the security can be borrowed, before the transaction is conducted. When short selling takes place, a short position arises in the security in question.

Under the Short Selling Regulation (EU) 236/2012, persons who have a net short position that amounts to or passes a certain threshold are obliged to report the transaction.

This notification obligation applies to net short positions in companies whose shares are admitted to trading on a regulated market or a multilateral trading facility (MTF).

Notification thresholds

A person who has a net short position in an issuer must notify FI when the position reaches 0.1 per cent of the issuer's issued share capital. Notifications must also take place at each additional 0.1 per cent in excess of this, both up and down, and when the position falls below 0.1 per cent. A notification of a net short position must have been received by FI no later than 3:30 PM CET (Central European Time) on the trading day after the day the notifiable position arose.

FI shall also be notified of net short positions in Swedish issued sovereign debt if the position reaches or falls below the relevant notification threshold. The relevant notification threshold for Swedish sovereign debt is published on the European Securities and Markets Authority's (ESMA) website (see below, under the heading Regulations).

How to submit a notification
Notifications are submitted via the Short Selling Online Reporting tool by the rapporteur to FI for issuers for which FI is the competent authority. See the Q&A below for an assessment of which authority is the competent authority for a company.

Instructions about how to notify and cancel net short positions can be found at Reporting/Short selling.

Please also note that a notification is regarded as having been received by FI once it is complete.

FI's short selling register

When a position reaches 0.5 per cent of the issued share capital and each 0.1 per cent above that, and when the position falls below 0.5 per cent, FI shall publish information about this position. These significant net short positions are published in real time on FI's website, see the register Net short positions.

Ban on uncovered short selling

In principal, the short selling regulations mean that uncovered short selling is banned. Uncovered short selling is also called naked short selling.

Short selling requires the person who is short selling the share to have borrowed the share or to have made alternative provisions resulting in a similar legal effect, have entered into an agreement to borrow the share or otherwise have an absolutely enforceable claim that entails a transfer of ownership of a corresponding number of securities so that settlement can be effected on the same day. Uncovered short selling involves the seller not having borrowed the security or ensured that it can be borrowed at the time of the short sale.

The following agreements, contracts and receivable ways to cover a short sale that are permitted under Article 5 of Commission Implementing Regulation (EU) 827/2012:

futures and swaps
options
repurchase agreements
standing agreements or rolling facilities
agreements relating to subscription rights
other claims or agreements leading to delivery of the shares or sovereign debt.

Refer to Commission Implementing Regulation (EU) 827/2012 for information about which agreements with third parties can be used for the purposes of conducting a permitted short sale.

Calculation of net short positions

Calculation of holdings

A short position in a company can arise through a short sale of a share or a transaction that creates or relates to another financial instrument where the effect is to confer a financial advantage on the person involved in the transaction in the event of a decrease in the price or value of the share or debt instrument.

A long position in a company can arise through holding a share issued by a company or through a transaction that creates or concerns another financial instrument where one of the effects of the transaction is to confer a financial advantage on the natural or legal person who is involved in the transaction in the event of an increase in the price or value of the share.

The net short position in the company is then calculated by deducting all long positions that the natural or legal person holds in the company's issued share capital from all short positions the person holds in the same.

Calculation of issued share capital

FI takes the position that under Swedish law an increase or decrease in the share capital shall be considered to have taken place when the Swedish Companies Registration Office has registered the change in the companies register. FI takes the position that the information provided by the Companies Registration Office's register concerning companies' issued share capital is correct.

Calculation of issued share capital at the time of issue

There are specific regulations for issues that pertain to when the issued shares are to be included in the calculation of share capital. Commission Delegated Regulation (EU) 918/2012, Annex II, Article 10, point 7 states that new shares issued from a capital increase shall be accounted for in the calculation of the total issued share capital from the day they are admitted to trading on a trading venue.

If the new issue pertains to a share class that has not been admitted to trading, for example unlisted A shares, the newly issued shares shall be included in the total issued share capital from the point in time at which they are registered with the Companies Registration Office.

Calculation of positions in groups (incl. management activities)

Group-level reporting

Legal persons who are part of a group, as defined in Article 2(1)(f) of the Transparency Directive, shall aggregate and net their positions at the group level when a net short position is calculated. Netting involves the short positions that the person has in the company being deducted from the long positions in the same company. Calculation of the net short position shall be performed for each of the legal persons in the group, after which the net short positions and net long positions for all legal persons in the group shall be aggregated and netted. The group shall also report its net short position when this reaches or passes an applicable threshold (see Notification thresholds).

Any positions that arise within the scope of management activities are exempted from the group's aggregate position (refer to Article 12(2)(b) of Commission Delegated Regulation (EU) 918/2012 for a definition of management activities). If an individual legal person's net short position reaches or passes a relevant notification threshold – without the group's aggregate position passing a notification threshold – the individual legal person shall report this position.

Management activities

A management entity (for example a bank or securities broker) that manages funds or portfolios on a discretionary basis pursuant to a mandate shall aggregate the net short positions of the funds and portfolios under its management for which the same investment strategy is pursued in relation to a particular issuer.

When a group as per the above both conducts management activities and other activities, the calculation, and any reporting, of net short positions shall be carried out separately for each activity.

Market making function and primary dealers

A market maker, or liquidity provider, is a market operator that quotes buy and sell prices for a specific security. There is an exemption from the notification obligation for net short positions in shares and sovereign debt for these natural or legal persons. There is also an exemption from the restrictions on short selling shares, sovereign debt and sovereign credit default swaps, i.e. from the ban on uncovered short selling.

Use of this exemption is conditional on the natural or legal person having notified FI of this not less than 30 calendar days before the person intends to use the exemption for the first time. The notification is sent to finansinspektionen@fi.se.

A primary dealer is a market operator that acts as a market maker for sovereign debt. There is an exemption from the notification obligation for net short positions in sovereign debt and from the restrictions on short selling of sovereign debt and sovereign credit default swaps for these natural or legal persons. Use of this exemption is conditional on the natural or legal person having notified FI of this not less than 30 calendar days before the person intends to use the exemption for the first time. The notification is sent to finansinspektionen@fi.se.

ESMA's list of market makers and primary dealers, last updated on 29 May 2019 (English)

Sanctions

FI must decide if a special fine be imposed on a person that fails to fulfil its obligations pursuant to the short selling regulation or Section 6 of the Supplemental Provisions for the EU Short Selling Regulation (2012:735). If the breach is negligible or excusable, or where special grounds exist, the special fine may be waived entirely or partially in accordance with section 9 of the same Act.

FI has published guidelines for special fines for infringements of the Short Selling Regulation (FI Ref. 16-15594) (see the heading Regulations below).

FAQ

Please note that the obligation to report a net short position in an issuer is always that of the person subject to the notification obligation themselves. Consequently, they must be well aware of their obligations if they are to be able to report their position to FI on time.

We have compiled the frequently asked questions and their answers in the document below. Questions concerning reporting of short selling can be sent to our Reporting department at rapportering@fi.se or +46 8-408 980 37 (weekdays 9–11).

FI is able to answer questions, provide information about applicable provisions and give guidance. As a supervisory authority, however, FI is unable to provide advance decisions in individual cases. If the person subject to the reporting obligation is uncertain whether a net short position has to be reported to FI or about how this is done, they are recommended to contact a legal adviser who is able to help them conduct an assessment on the basis of the circumstances that are specific to the person in question.

FI's FAQ about short selling (in Swedish)

ESMA's questions and answers (Q&A) on short selling, last updated on 14 November 2018 (English)

Regulations

Official Journal of the European Union, Volume 65, 11 January 2022

ESMA's decision on 16 March 2020 to temporarily lower the threshold for the notification of net short positions

ESMA requires to report net short positions between 0.1 per cent and 0.2 per cent during transition

ESMA to allow decision on reporting of net short position of 0.1 per cent and above to expire

ESMA proposes lowering the reporting threshold for net short position to 0.1 per cent on a permanent basis

Opinion for the adjustment of the threshold for the notification of net short positions in shares set out in Article 5(2) of Regulation (EU) No 236/20121 ("SSR") (Esma)