FCA Handbook - SSR 3.4 Arrangements to borrow and other arrangements under SSR 3.3.1R(2)

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SSR 3.4 Arrangements to borrow and other arrangements under SSR 3.3.1R(2)

For the purposes of SSR 3.3.1R(2), an agreement to borrow or other enforceable claim must be any of the following types of agreement, contract or claim, which are legally binding for the duration of the short sale:

(1) futures and swap contracts:
1. (a) leading to a physical settlement of the relevant admitted shares;
2. (b) covering at least the number of admitted shares proposed to be sold short;
3. (c) entered into prior to, or at the same time as, the short sale; and
4. (d) specifying a delivery or expiration date so that settlement of the short sale can be effected when it is due;
(2) options contracts:
1. (a) leading to a physical settlement of the relevant admitted shares;
2. (b) covering at least the number of admitted shares proposed to be sold short;
3. (c) entered into prior to, or at the same time as, the short sale; and
4. (d) specifying an expiration date so that settlement of the short sale can be effected when it is due;
(3) repurchase agreements:
1. (a) covering at least the number of admitted shares proposed to be sold short;
2. (b) entered into prior to, or at the same time as, the short sale; and
3. (c) specifying a repurchase date so that settlement of the short sale can be effected when it is due;
(4) standing agreements or rolling facilities:
1. (a) entered into prior to, or at the same time as, the short sale, of a predefined amount of specifically identified admitted shares;
2. (b) for the duration of the short sale covering at least the number of admitted shares proposed to be sold short; and
3. (c) specifying a delivery or execution date so that settlement of the short sale can be effected when it is due.
(5) agreements relating to subscription rights:
1. (a) where the person is already in possession, or by the time of the short sale will be in possession, of rights to subscribe for new admitted shares of the same company and of the same class;
2. (b) covering at least the number of admitted shares proposed to be sold short; and
3. (c) provided that the person is entitled to receive the admitted shares on or before settlement of the short sale so that settlement of the short sale can be effected when it is due; or
(6) other claims or agreements leading to delivery of the shares which:
1. (a) are agreements or claims which cover at least the number of admitted shares proposed to be sold short;
2. (b) are entered into prior to, or at the same time as, the short sale; and
3. (c) specify a delivery or execution date that ensures settlement of the short sale can be effected when it is due.

(1) Claims to shares that are not yet issued (for example, subscription rights, convertible bonds and placements) may only cover a short sale if the newly admitted shares will be made available so that settlement of the short sale can be effected when due, for example where the concerned rights or convertible bonds can be converted into admitted shares that would be made available so that settlement of the short sale can be effected when it is due.
(2) Rights to subscribe for new admitted shares cannot be used to cover a short sale in accordance with SSR 3.4.1R(5) where, at the time when the short sale is entered into, there is uncertainty as to whether the new admitted shares subscribed for will be available for settlement of the short sale in due time. That would be the case at least where:
1. (a) the final details of the capital increase are not yet known;
2. (b) it is not certain that the new admitted shares resulting from the capital increase are fungible with the existing admitted shares sold short;
3. (c) there is uncertainty as to whether a sufficient number of new admitted shares will be allocated to the subscriber that undertakes the short sale of the existing admitted shares; or
4. (d) the delivery of the new admitted shares in the context of the concerned capital increase cannot be effective before or on the date of settlement of the short sale of the existing admitted shares.

Guidance on rolling repurchase agreements

In relation to SSR 3.4.1R(3), the resulting short positions may exist well after the short sale has been settled. Nothing precludes the rolling of the repurchase agreement after the short sales have been executed and settled.