National Hedge Fund Groups Call For 'Sensible' Regulation Of Short Selling

by Carla Johnson, Investors Offshore.com

07 January 2009

Australia's Investment Company Institute (ICI), the United Kingdom's Investment Management Association (IMA) and the United States' Investment and Financial Services Association (IFSA) have come together to reaffirm their support of prudent regulatory oversight of short selling and recommend a "sensible global response to regulatory reform in this area."

"The ICI, IMA and IFSA are all committed to supporting regulatory reform designed to enhance investor confidence and combat market manipulation," the associations, which collectively represent USD15.54 trillion of assets under management, said in their statement issued on Wednesday. "Consequently, the development of a practical short selling regulatory regime is a critical matter for securities markets around the world in order to promote confidence and stability."

The joint statement continued:

"Short selling is a long established investment activity and an integral part of global capital markets. Short selling plays a crucial role in legitimate active investment strategies and risk management activities designed to enhance performance and maximise returns to investors. It also contributes to market liquidity, reduces transaction costs and assists to ensure pricing efficiency.

"We are firmly opposed to market manipulation or abuse. Where the specific concern is market manipulation, regulators should have both the information and capability to monitor and investigate thoroughly. We, therefore, support timely disclosure directly to the chief market regulator or supervisor of short sale positions above a de minimis amount."

"It is essential that the regulatory regime adequately protect confidentiality of the data provided to regulators. We are opposed to public disclosure of short selling information, which has the potential to increase downward selling pressure, facilitate the frontrunning of a fund’s security positions and reduce the incentive for proprietary research. While it is critical that market regulators have access to trading information of individual market participants to protect against market abuse, public disclosure should be designed to promote market confidence and not to facilitate trading strategies. We believe that if any public disclosure regime is to be established effectively, this is best achieved by a market or regulator publishing a single aggregated net short-interest position for each stock on a periodic, but sufficiently delayed, basis."

The statement concluded:

"We will continue to liaise with government, the regulators and the International Organization of Securities Commissions (IOSCO) regarding the development of a sensible short selling regulatory regime which promotes market integrity and confidence."

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