QCA Response to ESMA - Evaluation of certain elements of the Short Selling Regulation

4th September 2017

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Our Secondary Markets Expert Group contributed to our response to ESMA's evaluation of certain elements of the Short Selling Regulation.

Although we acknowledged the objective of harmonising the definition of ‘market making’ under SSR and MiFID II, we considered the current SSR definition to be broader. We commented that this could enable issuers to benefit from greater liquidity than under the MiFID II definition.

We supported extending the set of financial instruments eligible for the exemption for market making activities to include corporate bonds, convertible bonds and subscription rights. We commented that, without clear exemptions, market makers in bonds who adopt a strategy to hedge their market making risks would face additional costs, as this would inhibit their ability to provide liquidity in those financial instruments which would potentially be an issue for small to mid-size quoted companies.

We indicated that the current regime for the notification of a market maker’s intention to make use of the exemption, whereby firms are required to indicate all the single shares for which they intend to make use of the exemption, was unsatisfactory. We stated that we would support market makers being able to notify lists of financial instruments by using indices or sectoral categories. We noted that another option that would be favoured by many investment firms carrying out market making activities for our issuer members would be granting the exemption on the basis of market segments.

We suggested that the 30-day period mentioned in Article 17(5) of the SSR to provide for a faster process should be removed to avoid the potential risk that market makers are unable to make markets in securities due to the pre-notification requirement. We noted that market makers often seek to trade small and mid-size quoted companies’ securities immediately and so these companies would lose out it market markers have to delay their activities.

Click here to download our response (pdf)

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