New FSA Rules On Short Positions Effective September 19, 2008

This article was originally published 19 September,

2008

The UK Financial Services Authority ("FSA") has

announced a ban on new short positions in UK financial sector

companies with effect from September 19, 2008. In addition, from

September 23, 2008, all pre-existing net short positions of 0.25 %

or more of the issued share capital of such financial sector

companies must be disclosed.

The new rules are in addition to the requirements introduced by

the FSA in June 2008 for disclosure of short positions in the

companies during a rights issue period (for more information,

please refer to the Sidley Regulatory Update at

http://www.sidley.com/clientupdates/Detail.aspx?news=3611

).

The rules form part of the FSA's Code of Market Conduct and

apply to all participants in UK financial markets, whether such

participants are regulated or not. Failure to comply with the rules

will be considered by the FSA to be market abuse under the UK

Financial Services and Markets Act 2000. There is a general

exemption, however, for persons who act as market makers.

SHORT SELLING BAN

From September 19, 2008, no net short positions may be created

or increased in securities of a UK financial sector company. A

"UK financial sector company" is a UK bank, UK insurer or

their holding companies, in each case where their shares are

admitted to trading on a "prescribed market" (which

includes all markets of the London Stock Exchange (LSE)). The FSA

has published a list of 29 such companies at http://www.fsa.gov.uk/pubs/handbook/list_instrument200850.pdf

.

A "net short position" is defined as "any net

short position which gives rise to an economic exposure to the

issued share capital of a company." The new rules state that

all forms of economic interest in shares of the company

must be taken into account. Based on the FAQ guidance released by

the FSA, all financial instruments giving rise to the exposure to

the share capital of a company are relevant (including contracts

for differences, spread bets, options, depositary receipts and

convertible bonds).

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