Decision On Violation Penalty For Uncovered Short Selling

• Published date: 12 December 2023
• Subject Matter: Finance and Banking, Commodities/Derivatives/Stock Exchanges
• Law Firm: Advokatfirmaet Hjort DA
• Author: Mr Mikkel Toft Gimse

The Financial Supervisory Authority of Norway (Finanstilsynet) has imposed a violation penalty of NOK 2 million on the British management company, Cazadores Investments Limited for breaching the prohibition against uncovered short sales. This is in addition to the confiscation of profits for violations of the prohibition on uncovered short selling with regards to selling shares in connection with the new issuance of Flyr shares last year.

This is the latest decision in a larger complex of cases where several investors have been imposed violation penalties for similar violations. Some of the cases are currently in the appeals process with the Norwegian Ministry of Finance.

According to the EU Regulation on Short Selling (EU No 236/2012), uncovered short selling is prohibited. This means that a seller must have secured access to the financial instrument in question, so that settlement can take place on the settlement date by meeting one of the following three conditions:

(a) the natural or legal person has borrowed the share or has made alternative provisions resulting in a similar legal effect;

(b) the natural or legal person has entered into an agreement to borrow the share or has another absolutely enforceable claim under contract or property law to be transferred ownership of a corresponding number of securities of the same class so that settlement can be effected when it is due;

(c) the natural or legal person has an arrangement with a third party under which that third party has confirmed that the share has been located and has taken measures vis-à-vis third parties necessary for the natural or legal person to have a reasonable expectation that settlement can be effected when it is due.

In this case, the Norwegian Financial Supervisory Authority's view is that a capital increase in connection with...