11 Jul 2023

UK Short Selling Regulations - Key SBAI Recommendations Taken on Board

The SBAI welcomes the UK HM Treasury response to the Short Selling Regulation Review, to which we responded earlier this year.

The SBAI supports the government’s efforts to ensure that the UK capital markets attract liquidity, remain competitive and facilitate efficient price discovery. There are two important outcomes from this consultation:

  1. The government has decided to replace the current public disclosure regime based on individual net short positions with an aggregated net short position disclosure regime. This is in line with the SBAI’s recommendation: We have long argued that all information is reflected in the market price of a security, irrespective of whether short selling has happened or not, and there is no informational value in the public disclosure of the identity of short sellers. Public disclosure can encourage herding, short squeezes, and discourages investors from expressing their views through short positions.
  2. The government will increase the current disclosure threshold for net short position reporting to the FCA from 0.1% to 0.2%. This is a welcome step, although the SBAI had argued to replace the low (0.1%) disclosure threshold with 0.5%, given the reporting cost a low threshold imposes on investors and the lack of evidence for system wide risks.

In addition, the SBAI agrees that UK authorities should have powers to combat market abuse and maintain orderly markets, but it is important that the well-meant measures the authorities deploy do not become the source or amplifier of disorderly markets and thereby undermine confidence in markets. The SBAI had specifically suggested that “powers should be reserved for exceptional circumstances, anchored in a rigorous process for identifying disorderly markets to prevent unjustified short selling bans”. The SBAI welcomes that the government will require the FCA to set out its approach to using intervention powers.

The SBAI will continue to engage with securities regulators globally on topics in relation to the functioning of public markets, to facilitate more efficient price discovery, increase liquidity for all market participants and enable investors to make well informed investment decisions.

Short Selling Regulation: Call for Evidence