FSA proposes enhanced transparency requirements on short selling for all stocks
6th February 2009In a discussion paper (DP) issued today, the Financial Services Authority (FSA) has proposed a general short selling disclosure requirement for all UK listed stocks. The proposals follow a comprehensive review of short selling undertaken since the FSA introduced its temporary ban in September 2008.
The DP looks at the arguments for and against short selling, examines possible regulatory constraints on short selling and then examines options for enhanced transparency. The paper poses a number of questions on each of these areas and asks for responses to assist the FSA in formulating a regulatory response.
The FSA believes that the benefits of short selling such as price efficiency and liquidity, normally outweigh the disadvantages and proposes that there should be no direct restrictions on short selling. However, the FSA sees advantages in having enhanced transparency of short selling and so proposes that disclosure requirements for significant short positions should be introduced for all UK listed stocks.
Regulators around the globe have put in place a variety of different measures on short selling. The International Organization of Securities Commissions (IOSCO) and the Committee of European Securities Regulators (CESR) both have working groups on short selling. The FSA believes that international consensus on the key issues is extremely important and is actively contributing to the work of both groups supported by its findings from this review. The FSA is therefore not setting out a detailed blueprint for a disclosure regime at present but will use the feedback from this DP to inform the international debate.
Sally Dewar, managing director of wholesale and institutional markets, said:
"This discussion paper offers the opportunity for market participants and others to contribute to the development of future policy. We believe that 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."
The consultation period will close on 8 May 2009, following which the FSA will issue a Feedback Statement. This will set out its conclusions on a longer term policy for short selling.
