Hong Kong’s financial regulator, the Securities and Futures Commission (SFC), has unveiled a new regime for the reporting of short positions in an effort to enhance market transparency.
Under the new rules, financial institutions will be required to report whenever they have a short position that is equal to or exceeds 0.02% of the issued share capital of a listed company, or if the short position has a market value equal or above $30 million, whichever is lower.
The new regime will apply to constituents of the Hang Seng or H-share indices as well as financial or other stocks specified by the SFC. Derivatives will not be included.
The proposed reporting model was decided upon following an analysis of responses from a consultation paper released by the SFC on 31 July 2009. The paper detailed two possible approaches: enhancing the existing transactional reporting regime or implementing a new short-position model.
“A build-up of large short positions may be potentially disruptive to market stability,” said Martin Wheatley, the SFC’s chief executive officer. “A short-position reporting regime will not only complement Hong Kong’s robust short-selling regulatory framework but will also provide a more complete picture of short-selling activities in our market.”
Other countries across the globe have also made changes to the rules governing short selling following its perceived impact on driving stock values down during the financial crisis in 2008.
Yesterday the Committee of European Securities Regulators (CESR), which promotes supervisory convergence across European Union member states, proposed its own two-tier disclosure regime, which requires market participants to disclose short positions to the relevant authorities when they hit 0.2% of the issued share capital in a stock. CESR’s new rule would also require participants to report positions of 0.5% or any 0.1% steps above that level to both the relevant authority and the market as a whole.