ESMA · ESMA_QA_1945 Answer Published

Covering of a short sale on sovereign debt with a repo contract

Regulation
Short Selling Regulation (SSR) Regulation (EU) No 236/2012
Topic
Uncovered short sales
Submitted
2012-09-13
Answered
2012-09-13
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Question

Could a short sale on sovereign debt be considered covered by a repo contract executed in the days following the short sale but with the same settlement date as the short sale (e.g. a spot next repo for a T+3 cash sale)?

Answer

[ESMA70-145-408 SSR Q&A, Q&A 10.8] Yes, it is possible to cover a short sale by entering into a repo contract afterwards provided that:    1/ prior to the short sale, the short seller entered into one of the arrangements with a third party under Article 13(1)(c) of the Regulation and Article 7 of the ITS (e.g. obtained an “easy to purchase sovereign debt confirmation” according to Article 7(5));    2/ the repo contract has an earlier or the same settlement date as the short sale, so that the delivery of the relevant sovereign debt can be effected when it is due.
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This Q&A is published by European Securities and Markets Authority and is non-binding. It does not constitute legal advice. Updated weekly from official ESA sources.

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