Short-Selling: Progress On International Harmonisation And Forthcoming Changes In The UK

This article was originally published 23 July,

2009

This update highlights a number of important developments

regarding the regulatory framework for the short-selling of

securities.

At the international level – and in the European Union

(EU), in particular - significant progress is being made towards

the harmonisation of individual jurisdictions' short-selling

regulations.

In the UK, the existing temporary rules on disclosure of short

positions have now been extended again, and work is underway to

implement a permanent regime (which is expected to be significantly

broader, in some respects, than at present).

IOSCO's Principles – A Framework For

Regulators Globally

In a report published in June 2009, IOSCO (International

Organization of Securities Commissions) proposed four high-level

principles for effective regulation of short-selling, intended to

guide individual regulators in the formulation of their own rules.

The principles state that there should be:

appropriate controls to avoid the risks that could interfere

with the functioning and stability of the markets (e.g.

permitting short-selling only of specified eligible securities,

prohibiting "naked" shorting, controlling pricing, or

providing for settlement of failed trades);

a requirement to report relevant trades to the market or, at

least, to a regulator;

effective monitoring and enforcement; and

appropriate exceptions (e.g. for market-makers).

IOSCO's principles have no binding effect, but aim to

establish a sensible framework for development of specific national

rules.

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