FSA introduces short seller disclosure regime
New rules force short sellers to disclose positions in companies undertaking a rights issue
LONDON – Concerns over the potential for abuse through short selling during rights issues during the current market instability have prompted the UK’s Financial Services Authority (FSA) to introduction new disclosure rules for short sellers.
Although short selling is a legitimate technique and is not considered to be a form of market abuse, it has been shown to produce severe volatility in companies’ share price when there is a rights issue involved. As a result the FSA believes that improving transparency of significant short selling would be a good means of preventing the potential for market abuse.
“In these circumstances non-disclosure of significant short positions gives the market a false and misleading impression of supply and demand in the securities concerned. We are therefore introducing provisions in our Code of Market Conduct, to come into effect from Friday 20 June 2008, which will require the disclosure of significant short positions in stocks admitted to trading on prescribed markets which are undertaking rights issues. For this purpose we are defining a significant short position as 0.25% of the issued shares achieved via short selling or by any instruments giving rise to an equivalent economic interest. The obligation will be to disclose positions exceeding this threshold to the market by means of a Regulatory Information Service by 3.30pm the following business day,’ said the FSA.
The regulator has introduced the move after HBOS was forced to clarify its trading position earlier this week when traders sent the bank's shares below the quoted price of 275p that the lender intends to sell the shares to raise £4 billion through a rights issue next month. Following the FSA’s announcement, shares in HBOS were up by 7.77%, to 305p in early trading today.
In addition to this new disclosure regime, the regulator is considering whether it might be necessary to take further measures in this area. It is currently examining options such as restricting the lending of stock of securities in rights issues for the purposes of enabling short selling; and restricting short sellers from covering their positions by acquiring the rights to the newly issued shares.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Regulation
Revealed: the three EU banks applying for IMA approval
BNP Paribas, Deutsche Bank and Intesa Sanpaolo ask ECB to use internal models for FRTB
FCA presses UK non-banks to put their affairs in order
Greater scrutiny of wind-down plans by regulator could alter capital and liquidity requirements
Industry calls for major rethink of Basel III rules
Isda AGM: Divergence on implementation suggests rules could be flawed, bankers say
Saudi Arabia poised to become clean netting jurisdiction
Isda AGM: Netting regulation awaiting final approvals from regulators
Japanese megabanks shun internal models as FRTB bites
Isda AGM: All in-scope banks opt for standardised approach to market risk; Nomura eyes IMA in 2025
CFTC chair backs easing of G-Sib surcharge in Basel endgame
Isda AGM: Fed’s proposed surcharge changes could hike client clearing cost by 80%
UK investment firms feeling the heat on prudential rules
Signs firms are falling behind FCA’s expectations on wind-down and liquidity risk management
The American way: a stress-test substitute for Basel’s IRRBB?
Bankers divided over new CCAR scenario designed to bridge supervisory gap exposed by SVB failure