Regulation (EU) No 236/2012 of the European Parliament and of the CouncilDangos y teitl llawn

CHAPTER I U.K. GENERAL PROVISIONS

Article 1 U.K. Scope

1. This Regulation shall apply to the following:

(a) financial instruments within the meaning of point (a) of Article 2(1) that are admitted to trading on a trading venue in the [F1 United Kingdom], including such instruments when traded outside a trading venue;

(b) derivatives referred to in points (4) to (10) of [F2 Part 1 of Schedule 2 to the Regulated Activities Order 2001] that relate to a financial instrument referred to in point (a) or to an issuer of such a financial instrument, including such derivatives when traded outside a trading venue;

(c) debt instruments issued by [F3 the United Kingdom] and derivatives referred to in points (4) to (10) of [F2 Part 1 of Schedule 2 to the Regulated Activities Order 2001] that relate or are referenced to debt instruments issued by [F3 the United Kingdom].

2. Articles 18, 20 and 23 to 30 shall apply to all financial instruments within the meaning of point (a) of Article 2(1).

Textual Amendments

F1 Words in Art. 1(1)(a) substituted (31.12.2020) by The Short Selling (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1321), regs. 1(2), 4(1)(a) (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)

F2 Words in Art. 1(1)(b)(c) substituted (31.12.2020) by The Short Selling (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1321), regs. 1(2), 4(1)(b) (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)

F3 Words in Art. 1(1)(c) substituted (31.12.2020) by The Short Selling (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1321), regs. 1(2), 4(2) (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)

Article 2 U.K. Definitions

1. For the purpose of this Regulation, the following definitions apply:

(a) ‘financial instrument’ means an instrument listed in [F4 Part 1 of Schedule 2 to the Regulated Activities Order 2001];

(b) ‘short sale’ in relation to a share or debt instrument means any sale of the share or debt instrument which the seller does not own at the time of entering into the agreement to sell including such a sale where at the time of entering into the agreement to sell the seller has borrowed or agreed to borrow the share or debt instrument for delivery at settlement, not including:

(i)

a sale by either party under a repurchase agreement where one party has agreed to sell the other a security at a specified price with a commitment from the other party to sell the security back at a later date at another specified price;

(ii)

a transfer of securities under a securities lending agreement; or

(iii)

entry into a futures contract or other derivative contract where it is agreed to sell securities at a specified price at a future date;

(c) ‘credit default swap’ means a derivative contract in which one party pays a fee to another party in return for a payment or other benefit in the case of a credit event relating to a reference entity and of any other default, relating to that derivative contract, which has a similar economic effect;

[F5 (d) “sovereign issuer” means the United Kingdom, including any government department, or an agency or a special purpose vehicle of the United Kingdom;]

(e) ‘sovereign credit default swap’ means a credit default swap where a payment or other benefit will be paid in the case of a credit event or default relating to a sovereign issuer;

(f) ‘sovereign debt’ means a debt instrument issued by a sovereign issuer;

(g) ‘issued sovereign debt’ means the total of sovereign debt issued by a sovereign issuer that has not been redeemed;

(h) ‘issued share capital’ in relation to a company, means the total of ordinary and any preference shares issued by the company but does not include convertible debt securities;

F6 (i) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F6 (j) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(k) ‘market making activities’ means the activities of an investment firm, a credit institution, a third-country entity, or a firm as referred to in [F7 point (ka)], which is a member of a trading venue or of a market in a third country, the legal and supervisory framework of which has been declared equivalent by the Commission pursuant to Article 17(2) [F8 as it had effect before IP completion day, or by the Treasury in accordance with that paragraph as amended,] where it deals as principal in a financial instrument, whether traded on or outside a trading venue, in any of the following capacities:

(i)

by posting firm, simultaneous two-way quotes of comparable size and at competitive prices, with the result of providing liquidity on a regular and ongoing basis to the market;

(ii)

as part of its usual business, by fulfilling orders initiated by clients or in response to clients’ requests to trade;

(iii)

by hedging positions arising from the fulfilment of tasks under points (i) and (ii);

[F9 (ka) for the purposes of point (k), the firms referred to in this point are firms which provide investment services and/or perform investment activities consisting exclusively in dealing on own account on markets in financial futures or options or other derivatives and on cash markets for the sole purpose of hedging positions on derivatives markets or which deal for the accounts of other members of those markets or make prices for them and which are guaranteed by clearing members of the same markets, where responsibility for ensuring the performance of contracts entered into by such firms is assumed by clearing members of the same markets;]

[F10 (l) “trading venue” means—

(i)

a UK regulated market within the meaning of point (13A) of Article 2(1) of Regulation (EU) No 600/2014 ;

(ii)

a UK multilateral trading facility within the meaning of point (14A) of Article 2(1) of Regulation (EU) No 600/2014;]

(m) ‘principal venue’ in relation to a share means the venue for the trading of that share with the highest turnover;

(n) ‘authorised primary dealer’ means a natural or legal person who has signed an agreement with a sovereign issuer or who has been formally recognised as a primary dealer by or on behalf of a sovereign issuer and who, in accordance with that agreement or recognition, has committed to dealing as principal in connection with primary and secondary market operations relating to debt issued by that issuer;

(o) ‘central counterparty’ means a legal entity which interposes itself between the counterparties to the contracts traded within one or more financial markets, becoming the buyer to every seller and the seller to every buyer and which is responsible for the operation of a clearing system;

[F11 (p) “trading day” in relation to a trading venue, means a day during which the trading venue concerned is open for trading;]

[F12 (q) “turnover”, in relation to a financial instrument, means the sum of the results of multiplying the number of units of that instrument exchanged between buyers and sellers in a defined period of time, pursuant to transactions taking place on a trading venue or otherwise, by the unit price applicable to each transaction;]

[F13 (r) “FCA” means the Financial Conduct Authority;

(s) “competent authority” means—

(i) in relation to the United Kingdom, the FCA;

(ii) in relation to a Member State of the European Union, the authority which has been designated by that Member State as its competent authority for the purposes of Article 32 of this Regulation as it was in force immediately before IP completion day; and

(iii) in relation to a third country which is not a Member State of the European Union, the supervisory authority which exercises functions equivalent to those exercised by competent authorities in Member States under this Regulation as it was in force immediately before IP completion day;

(t) “credit institution” has the meaning given in Article 2(1)(17) of Regulation (EU) No 600/2014;

(u) “investment firm” has the meaning given in Article 2(1A) of Regulation (EU) No 600/2014;

(v) references to a “third country” (including in expressions including the words “third country”) are to be read as references to a country other than the United Kingdom;

(w) “Regulated Activities Order 2001” means the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 ;

(x) “PRA” means the Prudential Regulation Authority.]

2. The [F14 Treasury may by regulations specify] the definitions laid down in paragraph 1 of this Article, [F15 and in particular specify] when a natural or legal person is considered to own a financial instrument for the purposes of the definition of short sale in point (b) of paragraph 1.

Textual Amendments

F4 Words in Art. 2(1)(a) substituted (31.12.2020) by The Short Selling (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1321), regs. 1(2), 5(2)(a) (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)

F5 Art. 2(1)(d) substituted (31.12.2020) by The Short Selling (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1321), regs. 1(2), 5(2)(b) (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)

F6 Art. 2(1)(i)(j) omitted (31.12.2020) by virtue of The Short Selling (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1321), regs. 1(2), 5(2)(c) (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)

F7 Words in Art. 2(1)(k) substituted (31.12.2020) by The Short Selling (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1321), regs. 1(2), 5(2)(d)(i) (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)

F8 Words in Art. 2(1)(k) inserted (31.12.2020) by The Short Selling (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1321), regs. 1(2), 5(2)(d)(ii) (with savings in S.I. 2019/680, reg. 11) (as amended by S.I. 2020/1301, regs. 1, 3, Sch. para. 9(a)(i)); 2020 c. 1, Sch. 5 para. 1(1)

F9 Art. 2(1)(ka) inserted (31.12.2020) by The Short Selling (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1321), regs. 1(2), 5(2)(e) (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)

F10 Art. 2(1)(l) substituted (31.12.2020) by The Short Selling (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1321), regs. 1(2), 5(2)(f) (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)

F11 Art. 2(1)(p) substituted (31.12.2020) by The Short Selling (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1321), regs. 1(2), 5(2)(g) (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)

F12 Art. 2(1)(q) substituted (31.12.2020) by The Short Selling (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1321), regs. 1(2), 5(2)(h) (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)

F13 Art. 2(1)(r)-(x) inserted (31.12.2020) by The Short Selling (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1321), regs. 1(2), 5(2)(i) (with savings in S.I. 2019/680, reg. 11) (as amended by S.I. 2020/1301, regs. 1, 3, Sch. para. 9(a)(ii)); 2020 c. 1, Sch. 5 para. 1(1)

F14 Words in Art. 2(2) substituted (31.12.2020) by The Short Selling (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1321), regs. 1(2), 5(3)(i) (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)

F15 Words in Art. 2(2) substituted (31.12.2020) by The Short Selling (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1321), regs. 1(2), 5(3)(ii) (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)

Article 3 U.K. Short and long positions

1. For the purposes of this Regulation, a position resulting from either of the following shall be considered to be a short position relating to issued share capital or issued sovereign debt:

(a) a short sale of a share issued by a company or of a debt instrument issued by a sovereign issuer;

(b) entering into a transaction which creates or relates to a financial instrument other than an instrument referred to in point (a) where the effect or one of the effects of the transaction is to confer a financial advantage on the natural or legal person entering into that transaction in the event of a decrease in the price or value of the share or debt instrument.

2. For the purposes of this Regulation, a position resulting from either of the following shall be considered to be a long position relating to issued share capital or issued sovereign debt:

(a) holding a share issued by a company or a debt instrument issued by a sovereign issuer;

(b) entering into a transaction which creates or relates to a financial instrument other than an instrument referred to in point (a) where the effect or one of the effects of the transaction is to confer a financial advantage on the natural or legal person entering into that transaction in the event of an increase in the price or value of the share or debt instrument.

3. For the purposes of paragraphs 1 and 2, the calculation of a short or a long position, in respect of any position held by the relevant person indirectly, including through or by way of any index, basket of securities or any interest in any exchange traded fund or similar entity, shall be determined by the natural or legal person in question acting reasonably having regard to publicly available information as to the composition of the relevant index or basket of securities, or of the interests held by the relevant exchange traded fund or similar entity. In calculating such a short or long position, no person shall be required to obtain any real-time information as to such composition from any person.

For the purposes of paragraphs 1 and 2 the calculation of a short or long position relating to sovereign debt shall include any sovereign credit default swap that relates to the sovereign issuer.

4. For the purposes of this Regulation, the position remaining after deducting any long position that a natural or legal person holds in relation to the issued share capital from any short position that that natural or legal person holds in relation to that capital shall be considered a net short position in relation to the issued share capital of the company concerned.

5. For the purposes of this Regulation, the position remaining after deducting any long position that a natural or legal person holds in relation to issued sovereign debt and any long position in debt instruments of a sovereign issuer the pricing of which is highly correlated to the pricing of the given sovereign debt from any short position that that natural or legal person holds in relation to the same sovereign debt shall be considered a net short position in relation to the issued sovereign debt of the sovereign issuer concerned.

6. The calculation of sovereign debt under paragraphs 1 to 5 shall be for each single sovereign issuer even if separate entities issue sovereign debt on behalf of the sovereign issuer.

7. [F16 The Treasury may by regulations specify]:

(a) cases in which a natural or legal person is considered to hold a share or debt instrument for the purposes of paragraph 2;

(b) cases in which a natural or legal person has a net short position for the purposes of paragraphs 4 and 5 and the method of calculation of such position;

(c) the method of calculating positions for the purposes of paragraphs 3, 4 and 5 when different entities in a group have long or short positions or for fund management activities relating to separate funds.

For the purposes of point (c) of the first subparagraph, the method of calculation shall take into account, in particular, whether different investment strategies are pursued in relation to a particular issuer through more than one separate fund managed by the same fund manager, whether the same investment strategy is pursued in relation to a particular issuer through more than one fund, and whether more than one portfolio within the same entity is managed on a discretionary basis pursuing the same investment strategy in relation to a particular issuer.

Textual Amendments

F16 Words in Art. 3(7) substituted (31.12.2020) by The Short Selling (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1321), regs. 1(2), 6 (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)

Article 4 U.K. Uncovered position in a sovereign credit default swap

1. For the purposes of this Regulation, a natural or legal person shall be considered to have an uncovered position in a sovereign credit default swap where the sovereign credit default swap does not serve to hedge against:

(a) the risk of default of the issuer where the natural or legal person has a long position in the sovereign debt of that issuer to which the sovereign credit default swap relates; or

(b) the risk of a decline of the value of the sovereign debt where the natural or legal person holds assets or is subject to liabilities, including but not limited to financial contracts, a portfolio of assets or financial obligations the value of which is correlated to the value of the sovereign debt.

2. The [F17 Treasury may by regulations specify], for the purposes of paragraph 1 of this Article:

(a) cases in which a sovereign credit default swap transaction is considered to be hedging against a default risk or the risk of a decline of the value of the sovereign debt, and the method of calculation of an uncovered position in a sovereign credit default swap;

(b) the method of calculating positions where different entities in a group have long or short positions or for fund management activities relating to separate funds.

Textual Amendments

F17 Words in Art. 4(2) substituted (31.12.2020) by The Short Selling (Amendment) (EU Exit) Regulations 2018 (S.I. 2018/1321), regs. 1(2), 7 (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)