ESMA_QA_1947
Status: ✅ Answer Published
Link to ESMA Q&A tool: https://www.esma.europa.eu/publications-data/questions-answers/1947
Regulatory Context
Regulation : SSR
Level 1 Regulation: Short Selling Regulation (SSR) Regulation (EU) No 236/2012
Level 2 Regulation: No information available
Level 3 Regulation: No information available
Topic: Uncovered short sales
Subject Matter: Correlation test between two sovereign issuers
Question
Submission Date: 10 October 2012
When firms are comparing the correlation between two sovereign issuers (under Article 3(5) of the Regulation and Article 8(5) of the DR) should they do this on an issue per issue basis, or by comparing the yield curve of the two issuers?
ESMA Answer
Answer Date: 10-10-2012
[ESMA70-145-408 SSR Q&A, Q&A 10.10] Since net short positions are to be calculated on a sovereign issuer basis, ESMA considers that the calculation of correlation should be undertaken on the basis of the issued sovereign debt. So it would be a matter of comparing the yield curves of the two sovereign issuers to determine whether the test of high correlation as defined in the DR was met. Reminder on the locate requirements The requirements for the “locate” vary according to the financial instrument concerned and to the fact that the short sale will be covered by same day purchases (i.e. intraday short selling), as follow:
for sovereign debt, at least one of the conditions set out in Article 7 of ITS has to be satisfied; for MiFID liquid shares and shares included in the main national index, all the conditions set out in Article 6(4) of ITS have to be satisfied; alternately, the person can meet the conditions set out in Article 6(3) – in case of intraday short selling - or Article 6(2) of ITS; for other shares and in case of intraday short selling, all the conditions set out in Article 6(3) of ITS have to be satisfied; alternately, the person can meet the conditions set out in Article 6(2) of ITS; for other shares and cases, all the conditions set out in Article 6(2) of ITS have to be satisfied
This document was automatically extracted from the ESMA EMIR Q&A database.