Short-Selling - FSA's Proposal For A Permanent Regime

On 6 February 2009, FSA published its long awaited discussion

paper on a proposed permanent regime to regulate short selling in

the UK.

In response to the severe falls in the share prices of financial

institutions in September last year, FSA introduced, without

consultation, a set of temporary emergency measures in relation to

short selling which was perceived to be partly responsible for

these falls (to read our previous Law Now on these measures please

click here). The measures taken at that time were:

a purported ban on holding any new net short position in

respect of stocks in certain prescribed financial institutions;

and

disclosure of any significant existing net short positions in

the same institutions.

These measures remained in place until 16 January 2009 when,

following a short consultation, FSA chose to allow the ban to lapse

but preserve an amended disclosure requirement until 30 June 2009

(to read our Law Now on the amended requirements please

click here). A short analysis of the effects of the ban on the

UK market for the period September 2008 to January 2009 is enclosed

as Annex 2 of FSA's discussion paper - these should be

interpreted, according to FSA, "with caution".

The latest discussion paper sets out FSA's proposal for a

permanent regime to regulate short selling in respect of stocks

issued by all UK incorporated issuers (not simply the prescribed

financial institution stocks subject to the current disclosure

requirement). It seeks to balance the "legitimate" but

often controversial market technique of short selling with

FSA's objectives of maintaining orderly and efficient markets

and reducing financial crime. This, FSA hopes, will be achieved by

an enhanced disclosure regime.

However, the proposals have dismayed a number of fund managers

who see the measures as excessive in the context of the particular

problems raised last year for certain financial sector stocks.

Market participants are invited to raise their queries and provide

comments to FSA by 8 May 2009 before near final rules are set by

FSA.

To view the article in full, please see

below:

Full Article

FSA published a discussion paper (Discussion Paper 09/01) on its

proposed permanent regime to regulate short selling on 6 February

2009. The discussion paper considers a wide range of options that are

      available for the regulation of short selling (see summary of

      options below). Having considered the options available to it, FSA

      concludes that its preferred regime is one that focuses on

      disclosure. It argues that the absence of mandatory disclosure

      requirements may result in market transparency failures although it

      also acknowledges that excessive disclosure is likely to

      disincentivise investors and traders.

      The proposed regime, which will ideally have European and/or

      international consensus, will have the following elements:

      Enhanced public disclosure obligation in relation to

      significant short positions in stock issued by UK incorporated

      firms; and

      rights issues.

      Exemptions for Market Makers and in the Credit Default Swaps

      market; and

      Emergency powers to re-introduce a prohibition when this is

      warranted.

      Public Disclosure

      The current disclosure...