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In a significant shift, the identities of short sellers wagering on the decline of a UK company’s stock will soon remain confidential, according to new rules anticipated from the financial regulator on Tuesday.
The Financial Conduct Authority is preparing to introduce a policy that will release the overall short positions of those speculating against a company’s stock price in an anonymous, aggregated manner. This information comes from two individuals familiar with the matter.
With the UK no longer under the constraints of EU regulations, which previously mandated public disclosure of short positions exceeding 0.5% of a company’s share capital, such a change is now possible.
This proposed adjustment in disclosure aligns the UK more closely with the United States, where only aggregate short positions are made public, without revealing the identities of the investors involved.
Additionally, the FCA is likely to relax the requirements for when short sellers must privately notify the regulator of their positions, raising the notification threshold from above 0.1% to those exceeding 0.2% of a company’s share capital.
The regulator, which declined to comment, is likely to present the changes as part of its response to calls by the government to lighten the burden of its rules in support of UK economic growth and competitiveness. The move is set to be applauded by hedge funds.
However, there are fears that less transparency on short selling activity could make it easier for hedge funds to manipulate markets or make profits at the expense of market stability.
“It beggars belief that policymakers would look to water down the supervisory regime for short selling further,” said Simon Youel, head of policy and advocacy at campaign group Positive Money.
“Short selling can serve useful functions in theory, but in practice it is too often abused cynically by hedge funds to juice returns in ways that at best add no economic value, and at worst amplify risks for the wider public,” said Youel, also a visiting research fellow at the University of Manchester.
But financiers believe the reforms will boost the UK’s appeal as a global financial centre. “Smart reforms will enhance UK financial markets, attract investment and support economic growth,” said Rob Hailey, head of Emea government affairs at the Managed Funds Association, which represents hedge funds. “We will continue to pursue similar enhancements to the EU’s short sale framework.”
One US observer said the changes were unlikely to help UK investors. “Eliminating the disclosure of the identity of short sellers will likely result in increased short selling activity, but who would that benefit?” said Dennis Kelleher, head of US-based investor advocacy group Better Markets. “More financial activity often leads to bubble growth, not economic growth that benefits the real productive economy.”
The Treasury set the stage for the change with legislation introduced in January that replaced a law the UK inherited from Brussels.
Britain has already scrapped restrictions on “naked” short selling of sovereign bonds that prevented investors from taking a short position without borrowing the underlying bonds. But the FCA is expected to maintain the ban on “naked” short selling of shares.
