Since June 2008 the FSA has published a variety of papers on short selling and it is quite easy to lose track of what the current position is. In this article we take a look at the various papers the FSA has published together with a round up of what the current state of affairs is. At the end of the article we have put the links to all the FSA papers.

June 2008: Rights issues and disclosure

We start on 12 June 2008 when the FSA released a press statement which confirmed that it was introducing provisions into the Code of Market Conduct, to come into effect from 20 June 2008, which required the disclosure of significant short positions in stocks admitted to trading on prescribed markets which are undertaking rights issues.

The FSA defined a significant short position as 0.25 per cent of the issued shares achieved via short selling or by any instruments giving rise to an equivalent economic interest. The obligation is to disclose positions exceeding this threshold to the market by means of an RIS by 3.30pm the following business day.

Between 17 June and 20 June the FSA followed up its announcement with a number of publications. On 17 June the FSA published the TR3 disclosure form. On the same date the FSA published the Short Selling Instrument 2008 which set out frequently asked questions and answers. The next day the FSA followed this up with a list of issuers with securities admitted to trading on a prescribed market that, to its knowledge, were in a rights issue period as at 18 June 2008. This list was then updated on 19 June. On 20 June the FSA published an updated version of the Short Selling Instrument 2008.

September 2008: The prohibition

On 18 September 2008, the Board of the FSA introduced new provisions to the Code of Market Conduct prohibiting the active creation or increase of net short positions in publicly quoted UK financial companies. The new provisions came into effect at 00.01am on 19 September 2008.

In addition, the FSA required from 23 September 2008 daily disclosure of all net short positions in excess of 0.25 per cent of the ordinary share capital of the relevant companies held at market close on the previous working day. Disclosure of such positions held at market close on 19 September 2008 were required on 23 September 2008.

The FSA stated that the new provisions would remain in force until 16 January 2009, although the position would be reviewed after 30 days. The FSA also published a number of documents in connection with the new regime and these were:

  • Short Selling (No 2) Instrument 2008 - FAQs.
  • TR4 - Form of short position disclosure.
  • Short Selling (No 2) Instrument 2008 - Full version of short selling rules with highlighted changes.
  • Short Selling (No 2) Instrument 2008 - Full version of short selling rules without highlighted changes.
  • List of UK incorporated banks and insurers in connection with Short Selling (No 2) Instrument 2008.

The Short Selling (No.2) Instrument 2008 was updated on 23 September 2008.

October 2008: The 30 day review

October 2008 began with the FSA publishing an updated list of UK incorporated banks and insurers in connection with Short Selling (No 2) Instrument 2008.

On 22 October the FSA published a press release, confirming that it had completed its 30 day review of the prohibition on short selling. The FSA concluded that, with one exception, no changes would be made to its measures at that time.

The one change related to the requirements for disclosing significant net short positions in UK financial sector stocks. The FSA accepted that it was not a proportionate requirement to require daily disclosures of short positions where there had been no change in a short position. Consequently the FSA made amendments to the Code of Market Conduct so that once disclosure of a short position had been made, additional disclosures were only required when that short position changed.

November 2008: New FAQs

On 3 November 2008, the FSA published version 4 of the Short Selling (No 2) Instrument 2008. Version 5 of the Instrument appeared on 25 November.

January 2009: Prohibition ends but disclosure remains

On 6 January 2009, the FSA published Consultation Paper 09/1: Temporary short selling measures (CP09/1).

In CP09/1 the FSA confirmed that it was extending its temporary disclosure regime for significant net short positions in the stocks of UK financial sector companies until 30 June 2009. However, it did also propose one change to the disclosure regime. At that time disclosure had to be made if a net short position exceeded 0.25% of a relevant firm’s issued share capital, with further disclosures required when there were any changes. The FSA proposed that disclosures would only be required at 0.1% bands (i.e. at 0.35%, 0.45%, 0.55% and so on). The scope of the disclosure obligations would continue to apply only to stocks in UK financial sector companies.

The FSA also stated that the ban on the short selling of stocks in UK financial sector companies would expire on 16 January 2009.

On 14 January 2009 the FSA published Policy Statement 09/1: Temporary short selling measures (PS09/1). In PS09/1 the FSA confirmed that the ban on the short selling of stocks in UK financial sector companies would expire on 16 January 2009.

The FSA also confirmed that it was extending its temporary disclosure regime for significant net short positions in the stocks of UK financial sector companies until 30 June 2009. One change was made to the disclosure regime so that once a disclosure had been made, additional disclosures were only required if a short position changed significantly. This is done by the FSA requiring disclosure every 0.1% above the 0.25% threshold (i.e. at 0.35%, 0.45%, 0.55% and so on). Any short position reaching these further thresholds (whether increasing or decreasing) has to be disclosed. If a short position decreases below 0.25% a final disclosure also needs to be made.

Near the end of January there were further FSA publications. On 19 January 2009 the FSA published an updated version of its frequently asked questions on the Short Selling (No 2) Instrument 2008. An updated version of the FSA’s list of UK financial sector companies in connection with the Short Selling (No 5) Instrument 2009 was published on 22 January.

February 2009: Discussion Paper

On 9 February 2009, the FSA published Discussion Paper 09/1: Short selling (DP09/1). In DP09/1 the FSA stated that a blanket ban on short selling is currently not warranted although a tighter disclose regime is merited. The FSA favours an amended version of the current disclosure regime but extended to cover all UK stocks. This means that the FSA favours disclosure of positions in specific stocks by individual position holders to the market as a whole. The deadline for comments on DP09/1 is 8 May 2009.  

Summary  

  • The ban on the short selling of stocks in UK financial sector companies expired on 16 January 2009.
  • There is still a temporary disclosure regime for significant net short positions in the stocks of UK financial sector companies. This regime is currently scheduled to last until 30 June 2009. Once a disclosure has been made, additional disclosures are only required if a short position changes significantly i.e. every 0.1% above the 0.25% threshold (i.e. at 0.35%, 0.45%, 0.55% and so on). Any short position reaching these further thresholds (whether increasing or decreasing) has to be disclosed. If a short position decreases below 0.25% a final disclosure also needs to be made.
  • The FSA is currently consulting on the disclosure regime in DP09/1 and comments are due by 8 May 2009.
  • There are still provisions in the Code of Market Conduct that require the disclosure of significant short positions in stocks admitted to trading on prescribed markets which are undertaking rights issues.