Primary Market Bulletin 32

In PMB 21[4], we advised investors and other market participants of the new regulatory requirements they will need to implement to comply with the changes introduced by the Short Selling (Amendment) (EU Exit) Regulations 2018.  These requirements are particularly important for market makers who wish to use the exemption available to them for their trading activities. 

In PMB 24[3], we gave an update on our work on the UK list of exempted shares.

In this edition, we would like to reiterate key messages contained in PMB 21 on the new requirements for the market making exemption and give an update on how the net short position reporting will work from the end of the TP.

Market making exemption 

During the TP, the EU Short Selling Regulation (Regulation (EU) 236/2012) (the SSR) continues to apply in the UK and we expect firms to continue meeting the requirements to use the market making exemption under the SSR.

From the end of the TP, that is, 11pm on 31 December 2020, the SSR will be converted into UK law and amendments made under the Short Selling (Amendment) Regulations 2018 will take effect (the UK SSR).

Under the UK SSR, any firm wishing to use the exemption for transactions for market making activities will be required to join a UK trading venue and notify us of their intention to use the market maker exemption in writing 30 days ahead of their intended use, unless an equivalence decision has been made.

Notices of intention given to us before the end of the TP will remain valid.   

Firms that have already notified us of their intention to use the market maker exemption and remain members of a UK trading venue will be able to continue using the exemption after the TP comes to an end but only for instruments traded on UK trading venues.

However, notifications made to us for instruments traded in the EU will no longer be valid.

As a result of the recent unilateral equivalence decision by the Treasury announced on 9 November, EEA market makers will not need to become members of a UK trading venue to be able to use the UK SSR market maker exemption from the end of the TP.  However, EEA market makers will still need to provide us with a notification or a copy of any notification made to another competent authority at least 30 days before the end of the TP. 

Reporting requirements on net short positions

The SSR continues to apply in the UK until the end of the TP and we expect holders of net short positions to continue to report to us at the existing reporting thresholds.

The European Securities and Markets Authority (ESMA) is due to review their temporary decision on the 0.1% threshold for reporting net short positions in December 2020. We will communicate our reporting threshold requirements under UK SSR in due course. 

The reporting thresholds for UK sovereign debt and uncovered positions in UK sovereign credit default swaps will remain the same. The amount of the outstanding UK sovereign debt will be updated quarterly by us on our website.

To determine whether a position in shares should be notified to us, position holders will need to first consult FCA FIRDS[9] to see whether a share is traded in the UK. They must then check the UK list of exempted shares to see if the share is exempt. If the share is on FCA FIRDS but not exempt, position holders should send their notification to us via our Electronic Submission System (ESS).  

The UK list of exempted shares

The UK list of exempted shares will be published on our website from the end of the TP. This will be an Excel file with 2 lists (tabs):

• A: The FCA’s list of exempted shares containing all shares admitted to trading on UK trading venues where their principal trading venue is outside the UK.
• B: ESMA’s list of exempted shares as at the end of the TP. The shares on this list will remain exempt from some of the requirements in the UK SSR for 2 years, including reporting requirements under Articles 5 and 6 of the UK SSR.

The FCA’s list of exempted shares will be updated periodically as we identify shares whose principal trading venue is outside the UK. If a share appears on any of the above lists, no notification will be required. 

Electronic submissions

Please continue to send net short position notifications to our ESS after registering reporting persons and position holders. This process will not change.

Visit our short selling page[10] if you need any further information.

We would like to reiterate our message in PMB 21[12] about the Market Abuse (Amendment) (EU Exit) Regulations. At the end of the TP, the Market Abuse Regulation (MAR) will be converted into UK law and amendments made under the Market Abuse (Amendment) (EU Exit) Regulations (UK MAR) will take effect. UK MAR retains the same scope of financial instruments admitted to trading or traded on UK and EU trading venues. Key changes relate to Article 17 (Public Disclosure of Inside Information) and Article 19 (Managers’ (PDMR) transactions). These changes take effect from the end of the TP. In addition, we clarify below the nature of reporting requirements under Article 5 (Exemption for buy-back programmes and stabilisation) of UK MAR. 

Article 17: Public Disclosure of Inside Information

UK MAR retains broadly the same disclosure and notification requirements for inside information and delaying disclosure. However, for reporting purposes, any issuer that has requested or approved admission to trading or approved trading of its financial instruments on a UK trading venue will be required to send the notification on delayed disclosure of inside information to us under Article 17(4) of UK MAR. This is regardless of any additional obligation under EU MAR to notify an EU competent authority due to, for example, the issuer being registered in an EU Member State and/or having instruments admitted to trading on an EU trading venue. The content and format of the notifications remain the same. 

Similarly, issuers that have requested or approved admission to trading or have approved trading of their financial instruments on a UK trading venue will also be required to notify us in line with Article 17(6) of UK MAR and obtain our consent when seeking to delay disclosure under Article 17(5) of UK MAR. This is in addition to any requirement to notify and seek the consent of an EU competent authority under EU MAR.

Article 19: Managers’ (PDMR) transactions

UK MAR retains broadly the same requirements for persons discharging managerial responsibilities (PDMRs) of issuers and persons closely associated with PDMRs. However, there is a change: PDMRs within any issuer that has requested or approved admission to trading or approved trading of its financial instruments on a UK trading venue (and persons closely associated with them) will need to send their transaction reports to us under Article 19 of UK MAR. This is regardless of whether they are also required to report to an EU competent authority under EU MAR, due to, for example, the issuer being registered in an EU Member State. The content and format of the reports remain the same.

Article 5: Exemption for buy-back programmes and stabilisation 

UK MAR will retain the same exemptions for buy-backs and stabilisations on UK and EU trading venues. We clarify below the nature of the reporting requirements for these exemptions. This includes when buy-back and stabilisation transactions need to be reported to us. 

For buy-back programmes: 

• where the shares have been admitted to trading or are traded on a UK trading venue, issuers should continue to report to us each transaction relating to the buy-back programme (including those transactions which do not take place on a UK trading venue)  
• where the shares have been admitted to trading or are traded on an EU trading venue, issuers should continue to report to the EU competent authority of the trading venue in line with EU MAR

(Articles 5(1)(b) and 5(3) of UK MAR)

For stabilisations: 

• where the securities are traded on a UK trading venue, issuers, offerors, or entities undertaking the stabilisation, should continue to report all stabilisation transactions to us (including those transactions which do not take place on a UK trading venue)
• where the securities are traded on an EU trading venue, issuers, offerors, or entities undertaking the stabilisation, should continue to report to the EU competent authority of the trading venue in line with EU MAR 

 (Articles 5(4)(b) and 5(5) of UK MAR)

PRR 3.2.7R requires issuers to provide us with any information we require to comply with our obligations to provide information to ESMA under article 21(5) of the Prospectus Regulation or any regulatory technical standards adopted under article 21(12) of this regulation.  

In 2019, ESMA advised EU authorities that the collection of this information would be delayed, and we have not, to date, required anything from issuers in relation to this rule.

It is currently anticipated that ESMA will launch their new systems before the end of 2020. So we will submit information to this system up to the end of the TP. However, we can confirm that we do not require any additional information from issuers to enable us to comply with our obligations.

We previously clarified that prospectuses passported in to the UK before the end of the TP will remain valid in the UK until their expiry (ie 1 year from the date of the original approval of the prospectus). However, it will not be possible to passport prospectuses into an EEA country after the end of the TP. 

Additionally, the launch of ESMA’s new prospectus register systems will change the way that National Competent Authorities (NCAs) send and receive passported prospectuses. Given the new procedures, the fact that the end of the TP occurs during a holiday period, as well as the potential for an increased number of requested passports in the period up to 31 December, we strongly encourage issuers and their advisors to arrange their passporting request with the relevant EU NCAs well in advance of 31 December.

We will endeavour to process incoming passports received within 24 hours and publish the details on our website. But it is possible that this may be delayed if we receive large numbers of requests at the end of December. This will not affect the validity of prospectuses passported into the UK before the end of the TP for use in the UK.

On 30 September 2020, ESMA published a statement[9] on its ongoing work revising its Q&A concerning the Prospectus Directive and the Prospectus Regulation. ESMA provided a status update on those existing Prospectus Directive Q&A that will be revised or deleted, as well as a breakdown of Q&As which have been identified for revision by either the European Commission or ESMA subject to their new Q&A procedure.

Our guidance on our approach[10] to EU non-legislative materials applies to the Q&A on the Prospectus Regulation, which stated: ‘We will continue to have regard to other EU non-legislative material where and if they are relevant, taking account of Brexit and on-going domestic legislation. Firms, market participants and other stakeholders should also continue to do so.’

This continues to be the case for any Q&As that are published by ESMA between now and the end of the TP.

Our approach to PRR 1.1.5G and 1.1.6G[11] (‘Provisions concerning the prospectus regime’) and PRR 1.1.7G[19] (‘ESMA materials’) is also reflected in the Prospectus Regulation Rules sourcebook, as amended, following the end of the TP.

Future treatment of the ESMA Q&A in the UK

For any ESMA Q&A that is published from the end of the TP, we will consider whether it is appropriate to set out our expectations about issues contained within them and consult where it is appropriate to do so.

This is in line with the approach adopted by us in Brexit Policy Statement PS19/5[12]. 

In PMB 31[13] we noted that the new ESMA Guidelines will not become effective before the end of the TP. As a result, issuers and their advisors should continue to have regard to the ESMA CESR recommendations after the end of the TP for prospectuses approved in the UK. We also provided information on the future treatment of the ESMA Guidelines in the UK. See PMB 31[22] for further details. 

The Prospectus Regulation (Regulation (EU) 2017/1129) provides various exemptions from its requirement to publish an approved prospectus when securities are offered to the public or admitted to trading on a regulated market. We published an updated Technical Note (TN/602.3[14]) about these exemptions in August 2020.

In June 2020, the European Commission published a consultation[15] on its proposal for a new Delegated Regulation to supplement the Prospectus Regulation regarding the minimum information content of the exemption document in connection with a takeover by means of an exchange offer, a merger or a division. 

This has not yet been adopted by the EU and it may not be in force before the end of the TP. If it does not come into force by this date, it will not automatically become part of UK law after the end of the TP. 

After the end of the TP, Regulation 32(6) of UK’s The Prospectus (Amendment etc.) (EU Exit) Regulations 2019 (SI 2019/1234[16]) provides that the Treasury may, by regulations, specify the minimum information contents of the exemption document.

Issuers should see page 3 of our Technical Note (TN/602.3[24]) for our approach to the exemption documents, which states: ‘Where applicable, issuers will have to submit their application for approval of an exemption document to the FCA.’

If you need individual guidance on applying the exemption to specific circumstances, please contact[17] the Listing Transactions department.