UK financial regulator The Financial Services Authority (FSA) is proposing to extend a rule requiring the disclosure of ‘significant’ short positions in UK financial stocks indefinitely beyond its 30 June expiry date. Market participants have until 12 June to respond to the regulator’s proposals.
The FSA first introduced the short-selling disclosure requirement on 18 September 2008 following the collapse of US investment bank Lehman Brothers. On 16 January, it was amended and extended until 30 June.
Under the rule, investors need to disclose short positions that exceed 0.25% of a financial sector company’s issued share capital and every subsequent increase of 0.1% above that level. This means an investor must disclose its position when it reaches 0.35%, 0.45% and so on.
In a consultation paper released today, the FSA said extending the rule would continue to reduce the potential for abusive behaviour and disorderly markets. It expects that the requirement will be replaced eventually by a broader short-selling regime for all UK stocks.
The regulator said it did not opt for a new fixed expiry date for the rule because “it is not possible to forecast how long the need for the obligation will continue and we believe that setting another specified period would be artificial,” according to the consultation paper.
In February, the FSA issued a discussion paper examining longer-term options for the UK short-selling regime and plans to issue a feedback statement in Q3 this year outlining its conclusions.
The FSA’s proposal follows German financial regulator Bafin’s decision last week to extend its ban on the ‘naked’ short-selling of 11 financial stocks until the end of January 2010. The regulator extended the ban because of continued volatility in financial stock prices. Naked short-selling involves traders selling stock without first having borrowed it.