Expanding Shorts

As you will know, there is an obligation on firms to disclose short positions of 0.25% or more in securities in (a) a rights issue period or (b) any security in a UK financial sector company – MAR 1.9 refers.

The FSA has published a Feedback Statement (FS09/4) on short selling which confirms support for enhanced disclosure requirements rather than imposing restrictions on short selling. The document is the response to DP09/1 – “Short Selling” – published in February this year.

One proposal was to require disclosure of short selling of all stocks and not just those set out in MAR 1.9. For now the FSA is not proposing any changes to the current regime. This is not because the FSA has had second thoughts but rather is due to the fact that CESR has issued its own consultation paper on the same subject.

The latter is proposing a two tier disclosure regime: private disclosure to the regulator at the 0.1%+ level and public disclosure to the market at the 0.5%+ level (or 0.25%+ in respect of companies in a rights issue).

The obligation would extend to the shares of all EEA issuers and to non-EEA issuers whose shares are admitted to trading on such markets. The CESR consultation period has now ended and a final report from CESR is expected before the end of the year.

The FSA will work with CESR to develop an agreed European policy for short selling.

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