- Current disclosure requirements run until 30 June; FSA proposes extending rules
- Any short position over 0.25% to be disclosed; further disclosures required when positions change by 0.1%
- FSA also considering disclosure for short positions in all listed UK stocks
The FSA is proposing to extend the duration of its disclosure rules for short-selling in financial stocks. In January this year, the FSA ended its ban on short-selling in financial stocks introduced last year during the financial crisis, but implemented a disclosure regime to run until 30 June this year. Following a further consultation, a new system will be put in place before the current regime expires.
The current rules require investors to declare any short position in a financial stock over 0.25% of total issued share capital. Further disclosures are required when short positions held by investors are increased or decreased by 0.1%. The rules bring the regime for short-selling into line with the FSA's disclosure regime for long positions. (See: Contracts for Difference.)
The FSA also recently proposed in a white paper that short positions in all listed UK stocks should be disclosed. It argues that short-selling improves the accuracy of the valuation of shares and could "partially address" some of the issues caused by abusive short-selling, for example, short-sellers using scaremongering tactics to drive down the price of shares.
While endorsing greater disclosure, the FSA does not support any ban on short-selling. It argues that a ban would reduce liquidity in the market, reduce "pricing efficiency" and would deny the opportunity for profit-making for some firms. Compliance costs would also be significant if a ban were to be implemented, according to the FSA. Responses from an FSA survey showed that the initial costs of imposing a ban were £40,000 per firm, with ongoing costs of £6,500 per month.
Global efforts are also underway to determine appropriate regimes for short-selling. In November last year, the Technical Committee of the International Organisation of Securities Commissions, launched a task force to tackle short-selling abuse, led by SEC Chairman Christopher Cox.
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