France is seeking new ways to crack down on short-sellers as the country reacts to a growing wave of activist investors targeting some of its best known companies.
A cross-party government commission published recommendations on Wednesday aimed at preventing short-sellers and activists from unfairly destabilising French corporates.
These included widening the disclosures of short positions to derivatives instruments, pushing for more transparency around the borrowing and lending of stock, and investigating whether market functions are jeopardised once short selling reaches a certain volume of shares.
The push against short sellers comes amid increasing activist activity in France and an investigation by the French markets regulator, the AMF, into prominent US short-seller Muddy Waters’ attack on French retailer Casino. Muddy Waters, which closed out its short position in Casino in 2016, is under investigation by the AMF for market manipulation.
The non-legally binding report also suggests lowering the level at which shareholders must declare their position from 5 per cent to 3 per cent; introducing a fast-track procedure for companies that want to bring cases before the regulator; and allowing companies to respond to activist attacks in so-called quiet periods before results are published.
“These suggestions appear to be about trying to balance the powers in the market,” said Charles-eduard van Rossum, president of Ravel & Co, an investment banking boutique. “In the past the government might have gone for a more ‘French approach’ and taken a much harder line.”
The report was presided over by Eric Woerth, president of the finance commission and a member of the centre-right opposition party Les Républicains, alongside Benjamin Dirx, a member of President Emmanuel Macron’s governing La République en Marche.
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It follows French finance minister Bruno Le Maire’s suggestion in March that France would seek more measures to push back against activists, including potentially using public funds to defend companies it deems strategic and at risk from attack.
“It’s a good thing that shareholders are active. Activism is part of a healthy financial market, and Paris is one of them,” said Mr Woerth.
“However, adjustments are necessary to fend off excessive or destructive behaviour, and to ‘level the field’ between corporates and activists.”
The finance commission took feedback from numerous market participants and advisers while compiling its report, including activists Muddy Waters, Third Point, Elliott, CIAM and Amber; investors Aviva and Blackrock; companies such as Casino and Pernod Ricard; and advisers including Lazard and Schulte Roth and Zabel, according to people briefed on the discussions.
Historically, France has been a tough market for activists to crack given the high levels of family ownership, laws that give long-term investors double voting rights, and a perception that the French establishment rallies around some of its most prestigious companies.
