07 Aug 2023

SBAI Response to HM Treasury Short Selling Regulation Review - Sovereign Debt

Short selling plays an important role in global financial markets and brings many benefits, including investor protection against market volatility, increased liquidity, more efficient price discovery, dampening of price bubbles, and ultimately more efficient capital allocation.

The SBAI agrees with the HM Treasury proposal to remove the regulatory reporting requirement of short positions of duration-adjusted outstanding UK sovereign debt (which at a 0.5% disclosure threshold is equivalent to a short position of £118.6bn). We agree that there is a very low likelihood of the data being useful or relevant to authorities given the size and liquidity of the market, as well as the low-level of actual reporting incidents by market participants.

The SBAI also agrees with the proposals to remove restrictions on uncovered short positions in UK sovereign debt and to remove restrictions on uncovered short positions in UK sovereign CDS. While the SBAI has argued in favour of restrictions on uncovered short selling in its response to the HM Treasury Review on Short Selling in equity markets (where settlement failures could occur when more shares are sold short than available in the market), the size and liquidity of the UK sovereign debt market make this requirement unnecessary.

We believe these proposals will further enhance the efficiency and liquidity of the UK’s sovereign debt market and restore important hedging and risk management tools for investors.