OPINION

Emergency measure by the Greek HCMC under Section 1 of Chapter V of Regulation (EU) No 236/2012 on short selling and certain aspects of credit default swaps

I.Legal basis

1. According to Article 27(2) of Regulation (EU) No 236/2012 of the European Parliament and of the Council of 14 March 2012 on short selling and certain aspects of credit default swaps (the Regulation), the European Securities and Markets Authority (ESMA) shall within 24 hours of the notification having been made by a competent authority under Article 26 of the Regulation issue an opinion on whether it considers the measure or proposed measure necessary to address exceptional circumstances.
2. ESMA’s competence to deliver an opinion is based on Article 29(1)(a) of Regulation (EC) No 1095/2010 (ESMA Regulation). In accordance with Article 44(1) of the ESMA Regulation the Board of Supervisors has adopted this opinion.

II.Previous measures adopted by the Hellenic Capital Market Commission (HCMC)

3. On the 29th of June 2015, ESMA issued an opinion on an emergency measure proposed by the HCMC under Article 20 of the Regulation. The measure consisted of a temporary prohibition of transactions in any financial instrument that create, or increase, a net short position on any of the shares admitted to trading on the Athens Exchange and the Multilateral Trading Facility of “EN.A” (Alternative Market of the Athens Exchange) of which the relevant Competent Authority is HCMC and was applied from 30th June 2015 at 00.00.01 CET to the 6th July 2015 at 24:00:00 (CET).
4. The HCMC indicated that the measure was a complementary action to the ones already established on the 29th of June 2015 by the Greek Authorities in order to tackle the broader Greek financial system crisis.
5. On the 6th, the 13th, the 20th and the 27th of July and on the 3^rd of August 2015, some of the measures adopted by the Greek authorities were renewed until the 30^th of August 2015.
6. On the 31^st of August 2015, in accordance with Article 26 of the Regulation, the HCMC introduced a new emergency measure under Article 20 of the Regulation consisting in a ban on short selling of shares and units of Exchange Traded Funds (ETFs) admitted to trading on the Athens Exchange and the Multilateral Trading Facility of “EN.A” (Alternative Market of the Athens Exchange) of which the relevant Competent Authority is the HCMC. It also concerned all depository receipts (ADRs, GDRs) representing shares admitted to trading on the Athens Exchange and the Multilateral Trading Facility of “EN.A” (Alternative Market of the Athens Exchange). The short selling measure applied to any natural or legal person, irrespective of their country of residence, but contained the exemption for market making activities, provided that short selling transactions were conducted for hedging purposes. The emergency measure adopted on August 31^st expired at 24:00:00 (CET) on the 30^th of September 2015.
7. In respect of all the above cases, the HCMC notified ESMA and other competent authorities of its intention to impose/renew the relevant short selling measures in accordance with Article 26 of the Regulation and ESMA issued in all cases a positive opinion concerning the imposition/renewal of the relevant short selling measure pursuant to Article 27(2) of the Regulation.

III.Present measure

8. On the 30^th of September 2015, in accordance with Article 26 of the Regulation, the HCMC notified ESMA and other competent authorities of its intention to make use of its powers of intervention in exceptional circumstances and to introduce a new emergency measure under Article 20 of the Regulation.
9. The measure consisted in a ban on short selling of shares of five credit institutions admitted to trading on the Athens Exchange and comprising the FTSE/Athex Banks Index, irrespective of the venue where the transaction was executed. The temporary prohibition included sales of shares covered by subsequent intraday purchases. The temporary prohibition of short selling applied to all depository receipts (ADRs, GDRs) and warrants representing shares of such credit institutions admitted to trading on the Athens Exchange and comprising the FTSE/Athex Banks Index.
10. The above mentioned credit institutions were:

• Alpha Bank A.E. (ISIN GRS015013006)
• Attica Bank S.A. (ISIN GRS001003003)
• National Bank of Greece S.A. (ISIN GRS003003019)
• Eurobank Ergasias S.A. (ISIN GRS323003004)
• Piraeus Bank S.A. (ISIN GRS014003008)

11. In the notification, the HCMC explained the reason for the measure was that in July 2015 the Eurogroup agreed on a specific package of measures regarding the development of the Greek Economy, the most important element of the Eurogroup agreement being that 25 billion euros would be earmarked for the re-capitalisation needs of the Greek Banking system. Nevertheless, the amount of funds needed to secure the capital adequacy of the Greek banks, and most importantly, the legal framework that would apply in relation to such re-capitalisation, including whether some incentives for private shareholders will be provided or not, had not been officially disclosed at the time.
12. On the 30^th of September 2015, ESMA issued a positive opinion (ESMA/2015/1489) regarding this new emergency measure. The measure entered into force as of 00:00:01 hours (CET) on the 1^st of October 2015 and the original expiring date was the 9^th of November 2014 24:00:00 hours (CET).
13. On the 9^th of November 2015 and on 7^th of December 2015, the HCMC notified ESMA and other competent authorities of its intention to make use of its powers of intervention in exceptional circumstances and to renew the emergency measure originally introduced on the 30^th of September 2015. On the same days ESMA issued positive opinions regarding these renewals (ESMA/2015/1638 and ESMA/2015/1854), which expired on the 21^st of December 2015 at 24:00:00 (CET).
14. The proposed renewals in November and December 2015 concerned exactly the same instruments as the original measure (see paragraph 9 and 10), foreseeing an exemption for market making activities in the affected financial instruments.
15. In the notifications for the renewals, the HCMC considered that adverse circumstances were persisting in the Greek capital market, including also the existence of capital controls in respect of stock exchange transactions, but mainly in connection with the re-capitalisation of the systemic credit institutions that was not finalised yet, resulting in persistent market uncertainty that posed threats to the financial stability and the general level of market confidence
16. The HCMC explained that the re-capitalisation of the Greek Banking System, that the law voted by the Greek Parliament on October 31^st 2015 provides for, was actually in progress and had not been yet concluded for all credit institutions. Moreover, considering that the trading in the new shares issued from the relevant capital raising had not yet been started in all cases, the HCMC argued that, the lifting of the ban on short sales would tend to increase price volatility on listed credit institutions and would increase market uncertainty.  
17.  Taking into consideration that the market behaviour of banking sector securities has traditionally played a very important role in driving overall market valuations, concerns remained as regards unexpected sudden and significant swings in market confidence and therefore in relevant asset prices. The HCMC added that the successful conclusion of the aforementioned bank re-capitalisation and restructuring process as well as the commencement of trading of the new shares of all credit institutions were thus absolutely necessary, in order to safeguard the stability of the financial system and of the Greek capital market.
18. On the 21^st December 2015, the HCMC notified ESMA and other competent authorities of its intention to make use of its powers of intervention in exceptional circumstances and to renew the current emergency measure introduced on the 30^th of September 2015 once more, but this time with a limited scope.
19. The renewed measure consisted of a ban on short selling limited only to the shares of Attica Bank S.A. (ISIN GRS001003011) admitted to trading on the Athens Exchange, irrespective of the venue where the transaction is executed. The temporary prohibition included sales of shares covered by subsequent intraday purchases. The temporary prohibition of short selling applied to all depository receipts (ADRs, GDRs) and warrants representing shares of Attica Bank S.A. (ISIN GRS001003011) admitted to trading on the Athens Exchange. As for previous bans, an exemption for market making activities in the affected financial instruments would be foreseen.
20. In the notification for the partial renewal, the HCMC explained that the re-capitalisation of the Greek Banking System, based on the law 4340/2015 voted by the Greek Parliament on October 31^st 2015, was still not fully concluded. Re-capitalisation of Attica Bank was still on-going. HCMC indicated that the capital increase was to be concluded at the latest by the 31^st of December 2015 and that, subject to the successful completion of the issue, the trading of the new shares of Attica Bank was expected early January 2016, and thus the effect on the share price of this credit institution and on the volatility this trading might impose, had not yet been fully evaluated by market participants.
21. The HCMC considered that the lifting of the ban on short sales on Attica Bank shares would tend to increase price volatility on the institution and would increase market uncertainty. Within this context, the HCMC argued that, as done previously for the other banks for which the short selling ban applied during the re-capitalisation process and also covered a few trading days of the new shares, the proposed renewal should be limited to Attica Bank and should expire on the 11th of January 2016.
22. In the notification, the HCMC also explained that the proposed limited temporary ban of short-selling concerning shares of Attica Bank admitted to trading on the Athens Exchange was not expected to significantly impair price discovery and therefore market efficiency. Given that the main liquidity and trading activity on those instruments normally is located within Greece, the HCMC believed the proposed renewal would not create disproportionate negative effects, since it would affect a fairly small part of the EU overall market.
23. On the 21^st of December 2015, ESMA issued a positive opinion regarding the renewal of the emergency measure (ESMA/2015/1900), which is expiring on the 11^st of January 2016 at 24:00:00 (CET).
24. On the 11^th January 2016, the HCMC notified ESMA and other competent authorities of its intention to make use of its powers of intervention in exceptional circumstances and to renew the emergency measure introduced on the 21^st of December renewal as described in paragraph 19 above, namely Attica Bank.
25. In the notification of renewal of the measure for Attica Bank, the HCMC indicated that the re-capitalisation of the Greek banking system is not yet fully completed, the one of Attica Bank still being in progress. Even though the capital increase of Attica Bank was finalised since the end of December 2015, the trading of the new shares has not started yet. Both the dates of the delivery of the new shares to the beneficiaries of the capital increase and of their admission to trading remain to be announced by Attica Bank and the Stock Market operator. The HCMC expects this will take place within the next week following the relevant decision of the Athens Exchange.
26. Within this context, the HCMC argues that the short selling ban on Attica Bank should be extended to also cover a few trading days of the new shares to ensure equal treatment with the banks that had undertaken and concluded the re-capitalisation process before. Furthermore, the HCMC considers that such an extension would mitigate any possible risk of market volatility of the shares of Attica Bank and respond to any possibility of market uncertainty.
27. In the notification, the HCMC also explained that the proposed limited temporary ban of short-selling concerning shares of Attica Bank admitted to trading on the Athens Exchange was not expected to significantly impair price discovery and therefore market efficiency. The proposed renewal of the emergency measure should be in force as of 00:00:01 hours (CET) on the 11^th January 2016 until 24:00:00 (CET) on the 25 January 2016.

IV.Opinion

28. ESMA is adopting the following opinion on the measure notified on the 11 January  2016, on the basis of Article 27(2) of the Regulation:

On the adverse events or developments

ESMA considers that adverse developments which constitute a serious threat to market confidence in Greece could be understood as having considerably decreased with the successful completion of the share capital increase of Attica bank as announced by that bank on the 30^th December 2015. Attica Bank has been the last of the five banks to undertake the re-capitalisation process envisaged under Greek law. It represented less than 1 % of the total market capitalisation of the 5 re-capitalised banks before the Attica capital increase and less than 7% after the increase. It also stands for a very small fraction of the Greek banking sector. Not surprisingly, and unlike the other banks mentioned in paragraph 10 above, Attica Bank is not a significant supervised entity under the direct supervision of the ECB.

Although acknowledging that the successful and full conclusion of all the Greek banks’ re-capitalisation is important in order to safeguard the stability of the financial system as a whole and of the Greek capital market, as well as the protection of investors, ESMA considers that given that the capital increase of Attica Bank is agreed, priced, subscribed and publicly announced on the 30^th of December 2015, the threat to the financial stability of the bank, and more widely to the financial stability of the Greek financial market, is much less acute than in December 2015.

ESMA notes that the trading of the newly issued shares further to the completed capital increase has not started yet and thus there is a risk of increased volatility in the relevant market and that the confidence in the concerned bank could be affected if price movements were extreme. However, the evolution of the stock price of Attica Bank during the last month does not point towards, on average, a significant downward pressure on the prices. The volatility observed on Attica Bank is relative to the currently volatile stock markets in the EU.

In the trading figures of Attica Bank shares since late November 2015, it is evident that the trading volumes have reduced progressively but the price of the stock has not suffered from a downward price spiral. Only in one occasion (10 December2015) the stock price fell more than 10% in a single session. In general, looking at the last 30 trading sessions, the price has increased by 37%. In the last 10 trading sessions, the price has moved in an overall range (counting intraday minimum and maximum values) of 13% around the average closing price of the period. In terms of closing prices, the maximum fluctuation has been -3,97% since 22 December (observed on January 7 2016). Putting these moves in the context of quite volatile EU stock markets, linked to the international market trends, it is questionable whether the volatility of the stock price of Attica Bank could be qualified as extreme or even high. Obviously, one could argue that the price has found a support thanks, among other things, to the existing ban on short sales. While it is extremely difficult to isolate the price effect of the short selling ban with current data, it is ESMA’s view that, all in all, the pricing history of the stock does not give the impression of a highly fragile situation.

The main risk related with extreme volatility in a re-capitalisation exercise arises when the issuance price of the new shares and the allotment of the volume to be subscribed is not yet complete. In that scenario, significant (downward) price movements can dis-incentivise the investors that were considering to subscribe to new shares or can affect the issuance price in a manner that the re-capitalisation (in terms of the effective amount of funds to be received by the bank) can be put at risk. Once the pricing and the subscription are firm, price moves have a much lower impact on the success prospects of a re-capitalisation. They mainly affect the willingness of the new investors to hold their new shares or to sell them when the new shares start to trade. But the effects of this process on the financial stability of the entity are much less direct than when the volatility scenario precedes the establishment of the price and of the allotment of the capital increase. The latter was the prevalent scenario in most of the other occasions in which the measures of the HCMC was extended and on which ESMA issued positive opinions in the past. In ESMA’s opinion, such scenarios should be distinguished from the case at hand.

The question of whether the risk of falling prices on Attica Bank shares (which has not yet been observed) would endanger the orderly functioning of the whole Greek financial market and its integrity is not evident to ESMA, due to the small size of this particular institution and to the fact that the only pending element is the formal admission to trading of the new shares.

On the appropriateness and proportionality of the proposed measure

ESMA considers that the renewal of the emergency measure limited to the shares of Attica Bank is not appropriate and proportionate to address the above mentioned potential threat stemming from the volatility of the price of the market of Attica Bank shares. Given that the share capital increase of Attica Bank is firm and definitive as well as publicly known, ESMA considers that the prohibition of short sales in the shares of Attica Bank admitted to trading on the Athens Exchange will only serve the purpose of assisting in reducing market volatility until the final admission of the new shares and the first days of their trading. While this may be a positive goal, ESMA notes that the situation of Attica Bank is very different from the ones of the other Greek banks both in terms of quantitative significance with respect to financial stability (much smaller in the case of Attica Bank) and in terms of the timing in the process of re-capitalisation (given that only the final listing of the new shares is pending, as opposed to the fixing of the issuance price and the allotment of the subscriptions).

ESMA is thus of the view that there are alternative tools and measures, including those provided by Article 23 of the Short Selling Regulation consisting in a short term restriction of short selling in case of a significant fall in price, to address extreme market volatility concerns, should this volatility materialise in the coming days and more specifically risks of a downward spiral of the price of Attica shares. Those measures would be in ESMA’s opinion more appropriate and proportionate to address the risks that would arise from that situation than a total ban on short sales.

On the duration of the proposed measure

Considering the above negative opinion on the appropriateness and proportionality of the measure, ESMA is not further assessing the duration of the proposed renewal.

In accordance with Article 44(1) of Regulation (EU) No 1095/2010, the Board of Supervisors has adopted the following opinion:

I.   Legal basis

According to Article 27(2) of Regulation (EU) No 236/2012 of the European Parliament and of the Council of 14 March 2012 on short selling and certain aspects of credit default swaps[1], the European Securities and Markets Authority (ESMA) shall within 24 hours of the notification made by a competent authority under Article 26 of that Regulation, issue an opinion on whether it considers the measure or proposed measure is necessary to address the exceptional circumstances.

II. Background

1. On 6 July 2016, ESMA issued a positive opinion (ESMA/2016/1078) on an emergency measure proposed by CONSOB under Article 20(2)(a) and (b) of Regulation (EU) No 236/2012. The measure consisted of a ban on net short positions on Banca Monte dei Paschi di Siena spa (“BMPS” - ISIN IT0005092165) shares, either directly or through related instruments and irrespectively of the venue or market in which the transactions leading to those positions are conducted. The measure did not apply to trading in index-related instruments and CONSOB did not exempt entities performing market making activities from the scope of the prohibition. The measure was applied from 7 July 2016 at 00:00:01 CET and is applicable until 5 October 2016 at 24:00:00 CET.  
2. In the notification of 5 July 2016, CONSOB explained the reason for the measure was linked to the request from the European Central Bank (ECB) to BMPS to submit a credible plan outlining the measures to be taken in order to reduce the non-performing loans (NPL) compared to the total loans (i.e. by close to 15 billion EUR, from an actual ratio NPL/total loans of 42% to a target ratio of 20%, by 2018). In the days following the announcement by BMPS of the ECB’s request, BMPS’s share price fell sharply. Furthermore, large net short positions were taken on BMPS shares.  
3. In accordance with Article 26 of Regulation (EU) No 236/2012, on 3 October 2016, CONSOB notified ESMA of its intention to make use of its powers of intervention in exceptional circumstances and to renew the current emergency measure introduced on 6 July 2016.
4. Since the introduction of the ban, the results of the EBA stress tests published on 29 July 2016 showed that BMPS was the bank with the lowest results of the panel of 51 banks examined.
5. On the same day, BMPS announced publicly a complex plan allowing for the de-recognition of the bank’s entire bad loan portfolio through a securitization transaction. The bank also indicated this transaction will create a capital shortfall, which will be filled in by a new capital increase of around 5 billion EUR through a rights issue. An indicative timeline was provided. By the end of September 2016, the board of directors intended to approve a business plan for the bank and call a General meeting of BMPS for October/November to approve the transaction which is expected to be completed (rights issue and de-recognition of the bad loans) by the end of 2016.
6. In the course of September 2016, important changes in the top management of BMPS occurred: resignations of the Chief Executive Officer (CEO) and the Chairman of BMPS as well as the appointment of a new CEO. To date, no new Chairman has been chosen.
7. On 26 September 2016, BMPS’s board of directors announced a delay in the adoption of the business plan to enable further analysis of the possibility to modify the de-recognition plan in order to include the conversion of bonds into new shares. The approval of the new business plan is expected on 24 October 2016.
8. After the adoption of the ban, CONSOB noted in the period from 7 July to 23 September 2016 a substantial reduction of the net short positions in BMPS from 7.19% to 4.55% of the share capital and a lower settlement fail ratio on BMPS shares compared to the average Italian equity settlement fail ratio. Despite these effects of the ban, the price of BMPS shares has fallen over the same period by 33%, compared to a 7% increase in the main Italian index FTSEMIB.
9. The emergency measure notified by CONSOB consists of a ban on net short positions on Banca Monte dei Paschi di Siena spa (“BMPS” - ISIN IT0005092165) shares, either directly or through related instruments and irrespectively of the venue or market in which the transactions leading to those positions are conducted. The notification also includes in the scope the financial instruments which give claims to new BMPS shares. This is included to cater for the possibility that BMPS raises capital through a rights issue or the conversion of bonds and to avoid that the build-up of short positions could be channeled through those instruments, circumventing the effectiveness of the ban. The measure does not apply to trading in index-related instruments and CONSOB does not exempt entities performing market making activities from the scope of the prohibition.
10. The proposed measure is expected to enter into force on 6 October 2016 at 00:00:01 CET and to be applicable until 5 January 2017 at 24:00:00 CET.

III. On the adverse events or developments

11. ESMA considers that the circumstances described above are adverse events or developments which constitute a serious threat to market confidence and to financial stability in Italy.
12. More specifically, despite the noticeable effect of the ban introduced on 7 July 2016 on short selling activities on BMPS (the decrease of the overall net short positions in BMPS share capital and the level of fail ratio), the price of BMPS shares has continued to fall (-33% between 7 July and 23 September 2016), although to a lesser extent than in the weeks before the introduction of the ban in July 2016. This denotes that there is still considerable selling pressure on BMPS shares as market uncertainties remain. Besides, although the situation has improved, BMPS remains an issuer with high net short positions, more than 4.5% of the share capital.
13. It is noted that on 29 July 2016 BMPS has already communicated a plan to reduce the amount of non-performing loans. In this respect, the BMPS announced plan seeks to provide a structural and definitive solution to the entire bad loan portfolio (27.7 billion EUR gross and 9.2 billion EUR net), through the increase in the coverage ratios of impaired exposures and the transfer of the entire bad loan portfolio to a securitization structure. This is considered to be the most important operation of this kind ever on the Italian market. As this would result in a capital shortfall estimated at 5 billion EUR, the plan includes a recapitalization action through a rights issue.
14. However, the developments that affected the top management of BMPS, the resignation of the CEO and the chairman in the course of September 2016, the appointment of a new CEO and the on-going process for the designation of a new Chairman, have led to a delay in the finalisation and approval of the BMPS business plan as publicly acknowledged by BMPS in its press release of 26 September 2016. In addition, the same announcement indicated the plan initially disclosed late July 2016 could still be modified in order to include the conversion of bonds into new shares for the envisaged capital increase. Therefore, important uncertainties remain as to the final definition and implementation timing of the plan and a threat to market confidence persists regarding BMPS shares.
15. The combination of still large - though less significant than before - net short positions, the continuous selling pressure of BMPS shares, and the uncertainties of the final content and timing of the plan, which requires significant adjustments to be taken by BMPS, constitute in ESMA´s view a clearly adverse scenario for the stability of the bank and, given its relative size, of the Italian banking sector - BMPS being the third largest Italian bank for total asset value and the value of clients’ deposit. The measure proposed is intended to address this scenario of selling pressure and unusual volatility in the price of BMPS shares.

IV.  On the appropriateness and proportionality of the measure

16. ESMA considers that the emergency measure under Article 20(2)(a) and (b) of Regulation (EU) No 236/2012 in relation to BMPS shares is appropriate and proportionate to address the threat in the Italian financial markets.
17. The renewal of the measure is appropriate to help address the expected substantial selling pressures and the unusual volatility causing significant downward spirals in BMPS shares (adverse events and developments as indicated in subparagraph (c) of Article 24(1) of Commission Delegated Regulation (EU) No 918/2012[2]), given that it limits the ability to enter into short positions, which may be a relevant factor behind the significant falls experienced in the past. In that sense, to the extent that the measure restricts the ability to adopt short positions, it may also indirectly reduce the risk of a contagion effect to other shares of the Italian banking sector.
18. The measure remains appropriate compared to other alternatives that would address the threat. A temporary restriction on short selling according to Article 23 of Regulation (EU) No 236/2012 (which CONSOB also adopted on 5 July 2016 before introducing the net short position ban) would not address the extended period of risk resulting from the delays in finalizing the plan.  Similarly, a mere short sale prohibition would not cover activities through derivatives. Beyond that, a total ban including all products could have been considered, but CONSOB has decided to minimise possible detrimental effects on the efficiency of financial markets, and does not extend the restrictions to index-related instruments.
19. The inclusion in the scope of the financial instruments which gives claims to new shares is appropriate considering the high likelihood of a new capital increase to be undertaken by BMPS, even though it is not yet certain that it would be conducted through a rights issue or the conversion of bonds. Not including such financial instruments could make more complex the decision that has to be taken on the final form of the capital increase and prove detrimental to the successful conclusion of the capital increase.
20. As to the non-exemption for entities performing market making activities (market makers), ESMA notes that CONSOB considers that, given the broad dispersion of what is considered a market maker in different Member States, should the exemption be introduced, it would apply to a potentially very wide number of entities, affecting therefore the effectiveness of the prohibition. On the one hand, ESMA acknowledges that such a diversity exists and that the exemption for market makers could reach a wide number of entities compared to those that usually perform market making on a regular basis. On the other hand, ESMA considers that the non-application of the exemption to active market makers could have dis-incentivised or made more complex the quoting of BMPS shares by market makers active in this specific share, which could reduce additional liquidity from the market. However, ESMA notes that the introduction of the net short position ban since 7 July 2016 does not seem to have affected the liquidity of BMPS shares. Although the daily average traded quantity of BMPS shares has reduced by 31% in the period from 7 July to 23 September 2016 compared to a pre-ban period from 16 April 2016 to 6 July 2016, it is noted that the average daily traded quantity of all shares traded on the Italian regulated market MTA decreased by 24% and that BMPS shares accounted for less than 1% of total traded volume over the post-ban period. The fall in trading activity seems attributable to external factors (high overall volumes due to Brexit late June/early July and the traditionally low volume period of August) rather than to the introduction of the ban on BMPS.

V.  On the duration of the measure

21. ESMA considers that the duration of the measure, although it is proposed for the maximum period envisaged in the Regulation and is therefore a long-lasting measure, is justified, given the lack of certainty on the timing for the finalisation and approval of the plan to reduce the amount of non-performing loans.  Despite the announcements made at the end of July 2016 which included an indicative timeline for the approval of the disclosed plan (October/November 2016) and the implementation of this intended plan (by the end of 2016), the BMPS announcement of late July 2016 reflected the delays experienced by BMPS in finalising the plan, notably resulting from the changes of BMPS top management, but has not provided any renewed indicative timeline.
22. The measure may in any event be lifted before the end of the established period if circumstances that justified the renewal of the measure improve. ESMA recommends CONSOB to monitor closely the situation and to consider lifting the measure before the deadline if the situation so permits, to ensure that the restrictions remain in place for the shortest possible time.

This opinion will be published on ESMA’s website.

Done at Paris, 4 October 2016

For the Board of Supervisors

Steven Maijoor

In accordance with Article 44(1) of Regulation (EC) No 1095/2010 the Board of Supervisors has adopted the following opinion:

1. Legal basis

According to Article 27(2) of Regulation (EU) No 236/2012 of the European Parliament and of the Council of 14 March 2012 on short selling and certain aspects of credit default swaps[1], the European Securities and Markets Authority (ESMA) shall within 24 hours of the notification made by a competent authority under Article 26 of that Regulation, issue an opinion on whether it considers the measure or proposed measure is necessary to address the exceptional circumstances.

2. Background
   1. In accordance with Article 26 of Regulation (EU) No 236/2012, CONSOB notified ESMA on 5 July 2016 of its intention to make use of its powers of intervention in exceptional circumstances and to introduce an emergency measure under Article 20(2)(b) of that Regulation.
   2. The concerned emergency measure consists of a ban on net short positions on Banca Monte dei Paschi di Siena spa (“BMPS” - ISIN IT0005092165) shares, either directly or through related instruments and irrespectively of the venue or market in which the transactions leading to those positions are conducted.
   3. The proposed measure will not apply to trading in index-related instruments.
   4. CONSOB has not exempted entities performing market making activities from the scope of the prohibition. CONSOB justifies the absence of an exemption for market makers on the fact that the definition of market makers is not convergent across different jurisdictions.
   5. The proposed measure is expected to enter into force on 7 July 2016 at 00:00:01 CET and to be applicable until 5 October 2016 at 24:00:00 CET.
   6. On 4 July 2016 BMPS published a press release whereby it informed the public of a draft regulatory request coming from the European Central Bank (“ECB”).
   7. In particular, the ECB has requested BMPS to reduce the amount of non-performing loans (“NPL”) by close to 15 billion euro by 2018 and provide the ECB, by 3 October 2016, with a credible plan outlining the measures to be taken by BMPS in order to reduce the NPL compared to the total loans (i.e. from an actual ratio NPL/total loans of 42% to a target ratio of 20% by 2018).
   8. BMPS should submit the above plan by Monday 3 October 2016.
   9. Following the publication of the press release, BMPS price fell by 13.99% in a single day (4 July 2016) in respect to the reference price of the day before. The drop in price continued, more intensely, the following day (-19.39% on 5 July 2016).

3. On the adverse events or developments
   10. ESMA considers that the circumstances described above are adverse events or developments which constitute a serious threat to market confidence in Italy.
   11. More specifically, it should be noted that the BMPS share price already fell by 26.29% in the period starting from 24 June to 1 July 2016, following the results of the UK referendum. Overall, the price of BMPS shares has fallen by 50% in the last thirteen days, and a substantial selling pressure and unusual volatility in the price of shares issued by BMPS could be reasonably expected as market uncertainty remains. Moreover, BMPS is among the Italian issuers with the highest net short position (roughly equal to 6% of the share capital as at 1 July 2016).
   12. As a result, and at least until the abovementioned BMPS plan to reduce the amount of non-performing loans has been submitted to the ECB, a threat to market confidence persists regarding BMPS shares. If an abrupt decline in the price of BMPS shares continues, there is a risk of contagion effect to other shares of the Italian banking sector.
   13. In this respect, it should be considered that the ECB has requested BMPS to reduce the amount of NPL by close to 15 billion euro by 2018 and that BMPS net equity, according to the Consolidated Report on Operations as at 31 December 2015, was close to 9.5 billion euro. Therefore, the realisation of the plan may require significant adjustment.
   14. The combination of large short positions, severe decline movements in price in the last weeks and the impact of the actions that the bank will need to undertake in view of the relevance of the required measures constitutes in ESMA´s view a clearly adverse scenario for the stability of the bank and, given its relative size, of the Italian banking sector.

4. On the appropriateness and proportionality of the measure
   15. ESMA considers that the emergency measure under Article 20(2)(b) of Regulation (EU) No 236/2012 in relation to BMPS shares is appropriate and proportionate to address the threat in the Italian financial markets.
   16. The measure is adequate to address the expected substantial selling pressures and the unusual volatility causing significant downward spirals in BMPS shares (adverse events and developments as indicated in letter c) of Article 24(1) of Commission Delegated Regulation (EU) No 918/2012), given that it limits the ability to enter into short positions, which may be a relevant factor behind the severe falls experienced in recent dates. In that sense, to the extent that the measure restricts the ability to adopt short positions, it may also indirectly reduce the risk of a contagion effect to other shares of the Italian banking sector.
   17. The measure is appropriate because it is the least stringent of all the measures that would sufficiently address the threat. A temporary restriction on short selling according to Article 23 of the Regulation (EU) No 236/2012 (which CONSOB also adopted on 5 July 2016) would not address the long period of risk as it may not be extended to the described period of three months. Similarly, a mere short sale prohibition would not cover activities through derivatives. Above that, a total ban including all products could have been considered, but CONSOB has decided to minimise possible detrimental effects on the efficiency of financial markets, and does not extend the restrictions to index-related instruments.
   18. As to the non-exemption for entities performing market making activities (market makers), ESMA notes that CONSOB considers that, given the broad dispersion of what is considered a market maker in different Member States, should the exemption be introduced, it would apply to a potentially very wide number of entities, affecting therefore the effectiveness of the prohibition. On the one hand, ESMA acknowledges that such a diversity exists and that the exemption for market makers could reach a wide number of entities compared to those that usually perform market making on a regular basis. On the other hand, ESMA considers that the non-application of the exemption to active market makers could dis-incentivise or make more complex the quoting of BMPS shares by market makers active in this specific share, which could detract additional liquidity from the market.

5. On the duration of the measure
   19. ESMA considers that the duration of the measure, although it consumes the maximum period envisaged in the Regulation and is therefore a long-lasting measure, is justified, given the intention of covering the deadline BMPS was given by the ECB to deliver the plan to reduce the amount of non-performing loans (3 October 2016).
   20. Besides, the measure may be lifted before the end of the established period if circumstances that justified the imposition of the measure improve. ESMA recommends CONSOB to monitor closely the situation and to consider lifting the measure before the initial deadline if the situation so permits, to ensure that the restrictions remain in place for the shortest possible time.

This opinion will be published on ESMA’s website.

Done at Paris, 6 July 2016