What has happened?

Late on 5 January, FSA published its proposals for the future of the ban on short selling of UK financial sector stocks and disclosure of short positions in those stocks.

It needed to do this because the emergency measures it introduced in September run out on 16 January.

What does FSA plan?

FSA's plans have two distinct strands.

To extend the short-selling disclosure regime until the end of June: the regime will continue to apply only to UK financial sector stocks. FSA plans one change to introduce new bands for disclosure above the threshold 0.25% of a relevant issuer's issued share capital. Disclosure would be necessary only as each 0.1% band is breached (rather than on each increase or decrease no matter how small).

To end the ban on short selling of UK financial sector stocks on 16 January. However, FSA warns it would if necessary reintroduce the ban, maybe without consultation. Why the changes?

FSA thinks the special circumstances which made it introduce the ban have changed. Given:

  • its view that short selling is a legitimate investment technique in normal market conditions anyway;
  • that market conditions are now less extreme than they were last September; and
  • that various other measures have strengthened the position of the financial sector
  • FSA feels it can let the ban expire.  

On disclosure, FSA still sees value in increased transparency of short positions. FSA also sees disclosure as a deterrent to taking large short positions when it applies. So, for the time being, it wants to extend the disclosure requirement. It does not see the need to extend it to other firms or sectors. Also, it thinks it can now relax the requirement so as to require disclosure of changes in already disclosed holdings only where there is a "significant change" in a holding. It has decided this should be in 0.1% bands over the original 0.25% (that is, at 0.35%, 0.45%, 0.55% and so on).  

What happens next?

The consultation closes at the end of Friday 9 January. The deadline is so soon because FSA has to put new rules in place by 16 January.

It wants views on five specific questions including on the costs and benefits of extending the disclosure obligation.

FSA also promises for later in the month a more detailed consultation on the future of the short-selling regime in the longer term.