FSA extends short-selling disclosure requirement again

The requirement - which originally came into effect on September 23, 2008 and was due to expire on June 30 - will remain unchanged: companies must report net short positions in excess of 0.25% of ordinary share capital on a daily basis, with further disclosures required after increases of more than 0.1 percentage points. The FSA has opted to maintain the disclosure, although it says it intends to eventually replace the current standard.

The FSA published a discussion paper on June 1 suggesting an extension of the short-selling disclosure regime, and inviting comment from 15 industry participants, including banks, investment management firms and industry bodies. According to the FSA, nine of the 15 respondents supported the extended disclosure regime, while two of the six dissenters were generally supportive of greater transparency but advocated different methods for disclosure.

Four respondents broadly supported the disclosure requirement, saying the benefits outweighed the costs. However, five respondents felt the FSA had underestimated the costs of complying with the disclosure requirement. Two respondents also pointed to the added costs of complying with the varied short-selling regimes across different jurisdictions on top of the FSA's requirement.

The FSA originally imposed the disclosure regime for short selling on September 23, 2008, following the imposition of a complete ban on the short selling of 34 UK financial stocks on September 18. Like other national financial regulators, the FSA feared financial stock prices were being driven down further by aggressive short sellers seeking to cash in on the dramatic downturn in equity markets.

The ban on short selling was lifted on January 16, but the disclosure regime was maintained. Meanwhile, the FSA released a discussion paper on February 6 to debate an appropriate short-selling regulatory framework going forward. Among other measures, the FSA expressed its preference for net short positions of 0.5% in a company to be reported publicly. Some investors have complained public disclosures could leave them open to being squeezed by competitors, and could create a herding effect.

The FSA has yet to give any further indication of when it will announce new short-selling regulations. "The FSA is currently analysing responses to its discussion paper (DP 09/1) on the options for a future short-selling disclosure regime for all UK stocks and remains committed to getting the widest possible international consensus on how the regime would work," the FSA wrote in a statement on June 26.

See also: Regulators review short-selling restrictions