ESMA agrees with German regulator to introduce short selling ban on Wirecard shares

Maria Nikolova

Wirecard has experienced severe share price falls in the preceding two weeks following press reports about alleged fraud committed by several of its employees in Singapore.

The European Securities and Markets Authority (ESMA) has earlier today published its official opinion agreeing with German regulator BaFin that an emergency short selling prohibition has to be imposed on net short positions in Wirecard AG (Wirecard) shares under the Short Selling Regulation.

The measure entered into force at 06:00 CET today and is applicable until close of day (midnight CET) on April 18, 2019.

ESMA considers that the current circumstances related to Wirecard are adverse events or developments which constitute a serious threat to market confidence in Germany, and that the proposed measure is appropriate and proportionate to address the threat to German financial markets.

The emergency measure bans opening or increasing net short positions on shares issued by Wirecard AG, either directly or through related instruments relevant for the calculation of the net short position. The measure applies to any natural or legal person domiciled or established within the European Union or in a third country. The proposed measure will not apply to trading in index-related instruments. Furthermore, BaFin specified that market making activities are exempt from the restrictive measure.

Wirecard has experienced severe share price falls in the preceding two weeks. During the period from January 30, 2019 to February 15, 2019, the price of the shares dropped from €167,00 (opening on 30 January) to €99,90 (close on 15 February), reducing the market cap by 40%.

The price of Wirecard shares fell after press reports about alleged fraud committed by several employees of Wirecard subsidiaries in Singapore had been published. The negative press reports coincided with increased net short positions and with a corresponding high level of price volatility of Wirecard’s shares.

Wirecard is a payment service provider with an international presence, headquartered near Munich. It is admitted to trading on the Frankfurt Stock Exchange and is included in the DAX 30. One of its subsidiaries is Wirecard Bank AG, which holds a German banking license. Wirecard is also the parent company of Wirecard Card Solutions Limited, a firm that received permission by the UK Financial Conduct Authority to issue electronic money and provide payment services. In March 2017, Wirecard acquired Citi Prepaid Card Services and created Wirecard North America, thereby becoming active in the US market.

BaFin notes that the price swings mentioned above need to be considered in the context of past experiences in German markets, where several German issuers have been the targets of increased short-selling activity, which in BaFin’s opinion endangered market integrity and the trust of investors in an appropriate and efficient price determination.

BaFin says that Wirecard experienced such price changes in 2008 and 2016, which led BaFin and the public prosecutor’s office to investigate whether market manipulation took place. The public prosecution office has recently applied at the court for a penalty order because of market manipulation in the context of the event in 2016.

BaFin says that the current situation may lead to reduced confidence of investors active in the German market for the investors active in the German market, as reliable price determination may no longer be taken for granted. An additional problem identified by BaFin is the potential contagion risk, with the lack of confidence regarding an appropriate price determination extending to other issuers, including DAX issuers and financial institutions.

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