Changes to Shorting Rules

Whilst on the topic of shorting, as mentioned in Regulatory Roundup 17, short position disclosure requirements moved from MAR 1.9 to FINMAR 2.2 with effect from 6 August.

Firms will be aware that disclosure requirements apply in respect of short positions in certain companies that are subject to a rights issue or in a ‘UK financial sector company’.

The FSA advise that an error has crept into the drafting of FINMAR 2.

Short positions in a UK financial sector company are subject to ‘ongoing disclosure’ which requires disclosure when a position reaches, exceeds or falls below certain specified tiers, which start at 0.25% of the issued capital.

Short positions in respect of relevant rights issues are subject to ‘disclosure’ when a position reaches, exceeds or falls below 0.25% of the issued capital.

The FSA did not intend the ‘falls below’ to apply to rights issues disclosure. It is proposed that this be corrected by amending the definition of ‘disclosure’ to relate to when a position reaches or exceeds 0.25% and dropping the ‘or falls below’.

However we note that the FSA leaves unchanged FINMAR 2.2.1R(2)(a) which, for rights issue disclosure, still refers to “reached or exceeded, or the position falls below…”which would seem to negate the proposed change and leave things unchanged. We have asked the FSA for clarification.

The modest change can be seen in Annex A of FSA Instrument FSA 2010/40.

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