FSA To Lift Short Selling Ban

by Robin Pilgrim, LawAndTax-News.com, London

06 January 2009

The UK Financial Services Authority (FSA) announced on Monday that it has no plans to renew the ban on short selling when the current restrictions expire on January 16, although the regulator has proposed to extend its temporary disclosure regime for significant net short positions in the stocks of UK financial sector companies.

Under the FSA's proposals the disclosure regime will be extended until 30 June 2009. The FSA is also proposing to make one change to the regime: currently a disclosure must be made if a net short position exceeds 0.25% of a relevant firm’s issued shared capital, with further disclosures required if there are any changes in the position, but under the FSA’s proposals further disclosures would only be required at 0.1% bands (e.g. as a net short position reached 0.35%, 0.45% and so on). The scope of the disclosure obligations will continue to apply only to stocks in UK financial sector companies.

In addition, the FSA proposes that the ban on the short selling of stocks in UK financial sector companies will expire on 16 January. However, the regulator cautioned that it would be prepared to reinstate the ban without consultation if market conditions deteriorate.

Sally Dewar, managing director of wholesale and institutional markets at the FSA, said:

“We believe that these proposals are the right measures for maintaining orderly markets. Continuing the disclosure obligations as we propose will reduce the potential for abusive behaviour and disorderly markets. In addition, we will not hesitate to reinstate the ban if necessary."

This consultation on the disclosure regime will close on January 9 to enable the new measures to be in place at the expiry of the existing ones on January 16.

The FSA intends to publish a separate consultation paper within a month setting out its proposals for the longer-term short selling regime.

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