EU Regulation On Short Selling: Impact On U.S. Issuers Of Structured Notes

On November 1, 2012, the regulation (the "Regulation")¹ of the European Parliament and Council of the European Union on short selling and certain aspects of credit default swaps became effective.² The Regulation may have a substantive impact on U.S. issuers of structured products linked to securities that trade in the European Union, as well as other participants in structured product transactions, and this article is intended to discuss some of these impacts.

The Regulation was conceived out of the need to harmonize the fragmented approach of different regulators throughout the EU towards restricting short selling and the use of credit default swaps ("CDS"), which limits the effectiveness of adopted measures and results in regulatory arbitrage. The Regulation seeks, in particular, to improve the transparency related to significant short positions and address risks of negative price spirals and settlement failures, especially in relation to uncovered or 'naked'