The outbreak of the covid-19 disease in Europe since the end of February has had an adverse impact for the real economy and for EU financial markets. According to the European Securities and Markets Authority (ESMA), since 20 February 2020, the stock markets in the EU lost 30%, while all sectors and types of issuers were affected by severe share price falls.

At the same time, the outbreak of the disease has caused significant turbulence to the smooth operation of capital markets participants. The majority of financial institutions as well as corporates have had to adjust their business operations to a new norm by reshaping their employees’ working patterns and, often, triggering crisis management mechanisms, given the protective measures taken by the majority of the EU Member States.

Within this context, ESMA has published a series of interim measures and recommendations towards National Competent Authorities (NCAs) and market participants to help them address some of the adverse implications of the pandemic.

As a first step, ESMA issued a number of recommendations to financial market participants urging them to get ready to apply their contingency plans, including deployment of business continuity measures, to ensure operational continuity in line with regulatory obligations. Issuers should disclose as soon as possible any relevant significant information concerning the impacts of covid-19 on their fundamentals, prospects or financial situation in accordance with their transparency obligations under the Market Abuse Regulation and should also provide transparency on the actual and potential impacts of covid-19, to the extent possible based on both a qualitative and quantitative assessment on their business activities, financial situation and economic performance in their 2019 year-end financial report if these have not yet been finalised or otherwise in their interim financial reporting disclosures. Asset managers should continue to apply the requirements on risk management.


To curtail the adverse effect of the present circumstances on the share prices, ESMA issued a decision requiring the holders of net short positions in shares traded on a European Union (EU) regulated market to notify the relevant NCA if the position reaches or exceeds 0.1% of the issued share capital. This decision, which took effect on 16 March 2020, was adopted on the basis of current market circumstances that are substantially threatening the financial stability in the Union. According to ESMA, substantial selling pressure and unusual volatility in the price of shares is already ongoing and could continue to occur. In such situation market participants may take new short positions in order to profit from further price falls, which may in turn exacerbate the falls experienced in the past weeks.

Following that, ESMA also issued positive opinions on the ban of transactions which might constitute or increase net short positions on stocks admitted to trading to several EU trading venues and regulated markets (regardless of whether they are executed on venue or OTC) following notifications from EU NCAs including the Belgian FSMA, the Greek HCMC, the French AMF and the Italian CONSOB. This is an emergency measure provided under the Short-Selling Regulation to address adverse events or developments that constitute a serious threat to financial stability or to market confidence in one or more Member States.

Securities Financing Transactions Regulation (SFTR)

Regarding the forthcoming application of the Securities Financing Transactions Regulation (SFTR), which is set for 13 April for credit institutions and investment firms, ESMA has recognized that the SFT reporting implementation is now heavily affected by the covid-19 pandemic. The affected entities face severe resource restrictions in implementing at the same time contingency plans to ensure the continuity of their operations and ongoing projects to meet new regulatory requirements. Within this context, ESMA expects competent authorities not to prioritise their supervisory actions towards these entities regarding SFT transactions concluded between 13 April 2020 (application date) and 13 July 2020. ESMA’s expectations also apply to SFTs subject to backloading requirements under SFTR.

Tick-size regime for Systematic Internalisers

Under the Markets in Financial Instruments Regulation (MiFIR) and the Investment Firm Regulation (IFR), Systematic Internalisers (SIs) have to comply with the tick size regime from 26 March 2020.

Given that the emerging requirements for SIs require changes to critical trading technology infrastructures, at a moment when the business operations are handled from different geographical locations, the implementation of the requirements can create additional operational risks for certain EU markets participants at a time of increased volatility in markets.

Taking these factors into consideration and on account of the current extraordinary circumstances, ESMA expects competent authorities not to prioritize their supervisory actions in relation to the new tick-size regime introduced in MiFIR towards SIs, as of 26 March 2020 and until 26 June 2020, and to generally apply their risk-based supervisory powers in their day-to-day enforcement of applicable legislation in this area in a proportionate manner.

Call taping under MiFID II

The adverse circumstances created by the pandemic also seem to have an impact on financial markets participants’ ability to achieve on-going compliance with certain requirements. Credit institutions’ and investment firms’ obligation to record telephone conversations regarding the reception, transmission and execution of orders under MiFID II may not be practicable (for example due to the sudden remote working by a significant part of staff, or the lack of access by clients to electronic communication tools).

If, under these exceptional scenarios, firms are unable to record voice communications, ESMA expects them to consider what alternative steps they could take to mitigate the risks related to the lack of recording.

This could include the use of written minutes or notes of telephone conversations when providing services to clients, subject to prior information being provided to the client of the impossibility to record the call and that written minutes or notes of the call will be taken instead. In these scenarios, firms should also ensure enhanced monitoring and ex-post review of relevant orders and transactions.

Going forward

ESMA’s interim measures are very much welcome and they provide some reprieve for firms given the adverse effects of the pandemic and the challenging conditions within which they are called to operate.

Given the uncertainty surrounding the timescale of the turbulence and the exact impact of the pandemic and the Governments’ protective measures for financial markets participants’ activities and their economic outlook, regulatory requirements expected to take effect beyond July and their implications for entities have also to be assessed by regulators.

For instance, firms’ implementation plans for the next phases of the margin requirements for non-centrally cleared derivatives, which enter into force in September 2020 and September 2021, is very much likely to have been disrupted putting entities’ compliance programmes at risk.

The Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) have already agreed to extend the deadline for completing the final two implementation phases of the margin requirements for non-centrally cleared derivatives, by one year.

According to BCBS/IOSCO, this extension will provide additional operational capacity for firms to respond to the immediate impact of Covid-19 and at the same time, facilitate covered entities to act diligently to comply with the requirements by the revised deadline.

With this extension, the final implementation phase will take place on 1 September 2022, at which point covered entities with an aggregate average notional amount (AANA) of non-centrally cleared derivatives greater than €8 billion will be subject to the requirements. As an intermediate step, from 1 September 2021 covered entities with an AANA of non-centrally cleared derivatives greater than €50 billion will be subject to the requirements.

Even though the BCBS/IOSCO have extended the timeline by a year, the proposed extension has still to be implemented in the EU jurisdiction through the necessary legislative amendments proposed by the Joint Committee of the European Supervisory Authorities (ESAs).

To this end, EU supervisors would have to start assessing the impact of covid-19 with regard to firms’ ability to comply not only with those obligations whose implementation is imminent but also with the requirements expected to be implemented in the course of the following months.