09 Feb 2009, David Benyon, Operational Risk & Regulation
LONDON - The UK Financial Services Authority (FSA) has released a discussion paper proposing general disclosure rules for short selling. The regulator says the requirements would apply to all UK-listed stocks, replacing the supervisor's temporary disclosure requirements, which expire in June 2009.
The regulator says enhanced transparency is necessary but is keen to stress that short selling's benefits outweigh its disadvantages. The paper says there will be no direct restrictions on short selling, citing benefits of increased liquidity and price efficiency, and asks the industry to assist in the regulator's response.
The FSA proposals follow a comprehensive review of short selling taken since it instituted its temporary ban on September 18, 2008 and which expired on January 16 this year. That expiry left reporting requirements still in place for full disclosure on shorting positions of 0.25% and above.
The discussion paper examines arguments for and against short selling - an accepted market practice until September's Lehman Brothers and Merrill Lynch failures caused a shockwave of financial instability and sent international bank share prices tumbling.
"This discussion paper offers the opportunity for market participants and others to contribute to the development of future policy," says Sally Dewar, head of FSA enforcement. "We believe enhanced disclosure across the whole market is the right way forward. We also consider it to be important that we align our proposals with those being developed on an international basis and we are working towards this."
Harmonisation of international regulatory responses is highlighted as crucial by the FSA. European Union member states have adopted a raft of temporary short-selling restrictions since the FSA's September ban. Since then, the EU's Committee of European Securities Regulators has launched a task group looking at a pan-European supervisory solution, while the self-regulating International Organisation of Securities Commissions has launched its own task force looking at the case for reform.
Consultation will end on May 8, after which the FSA will issue feedback on its future long-term policy.
The discussion paper can be downloaded here.
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