Following a brief consultation period, the United Kingdom Financial Services Authority (“FSA”) has confirmed the proposals set out in its recent Consultation Paper (CP09/1) relating to short sales in UK financial sector stocks. “FSA Proposes to Relax Ban on Short Selling but Retain Disclosure Obligation” (SRZ Alert, 6 Jan. 2009).  

Under the new rules, the ban on short selling UK financial sector stocks, introduced as an emergency measure in September 2008, will expire effective at 00:00:01 on 16 Jan. 2009.  

However, the disclosure obligation will continue to apply until 30 June 2009. Under the disclosure obligation, any person, whether authorised by the FSA or not, holding a “disclosable short position” in a UK financial sector company must provide “adequate ongoing disclosure” via a Regulatory Information Service (“RIS”) to be filed not later than 3:30 pm on the business day following the day on which the “disclosable short position” is held. For these purposes, a disclosure threshold is set initially at 0.25% of the issued capital of the underlying financial company and thereafter at each 0.1% above the initial disclosure threshold. Any short position (whether increasing or decreasing) which crosses a disclosure threshold must be disclosed. Disclosures made via an RIS are publicly available.  

Failure to comply with the disclosure obligation “is behaviour which, in the opinion of the FSA, is market abuse (misleading behaviour)”.  

The FSA has not at this time made any changes to the market sector (ie banks and insurers) or the specific companies covered by the rules. However, the FSA expects to publish, in the next few weeks, a further consultation on short selling with regard to the market as a whole.  

The Policy Statement, containing Feedback on CP09/1 and the Final Rules, is available at http://www.fsa.gov.uk/pubs/policy/ps09_01.pdf 

The latest version (dated 14 January 2009) of the FSA’s Frequently Asked Questions is available at http://www.fsa.gov.uk/pubs/other/Short_selling_FAQs_V1.pdf 

The list of the 34 companies covered by the Rules is available at http://www.fsa.gov.uk/pubs/other/Shortselling_list.pdf