The revised version clarifies that claims for unissued shares only cover a short sale “if the availability of the new shares for settlement by the arrangement is ensured when settlement is due.”
Initially, ESMA stated that claims to shares, such as subscription rights and convertible bonds may only cover a short sale if the availability of the new shares for settlement by the arrangement is ensured when settlement is due.
Essentially meaning the concerned rights or convertible bonds can be converted into shares that would be available in time for ensuring the settlement.
As of 5 February, ESMA now requires that those same rights to subscribe for new shares cannot be used to cover a short sale.
This is in accordance with the European Commission’s Article 5(1)(e) which states, “at the time of entering into the short sale, there is uncertainty as to whether the new shares subscribed for will be available for settlement in due time”.
ESMA stated that these rules would apply where there may be capital increase variations across each Member States, or whether it is not ascertained that the new shares resulting from the capital increase are fungible with the existing shares sold short.
The European authority also clarified that other concessions would be made where there is uncertainty as to whether a sufficient number of new shares will be allocated to the subscriber that undertakes the short sale of the existing shares.
ESMA also dictated that the delivery of the new shares in accordance with the applicable national law in the context of the concerned capital increase cannot be effective before or on the date of settlement of the short sale of the existing shares.