Bloomberg News

U.K. Regulator Seeks European Standard on Short Sales

October 01, 2009

The U.K.’s financial regulator said it may introduce stricter rules on short selling once European securities regulators develop regional standards on the disclosure of such transactions.

The Financial Services Authority will maintain current reporting rules for the financial industry and companies involved in rights offers while it works on a pan-European disclosure regime, the London-based agency said in a statement.

The FSA is working with other European securities agencies through the Committee of European Securities Regulators to set standard disclosure rules after regulators around the world took individual emergency measures to restrict short selling at the height of the financial crisis last year.

“Once they have a fairly clear idea where CESR is going, the FSA might adopt” stricter proposals prior to full passage by the European parliament, said Jeremy Jennings-Mares, a lawyer with Morrison & Foerster LLP in London. The FSA “is keen to drive this thing forward.”

The FSA “will work towards agreement on future requirements at an international level rather than introducing a separate domestic regime,” the regulator said in the statement.

Short-selling allows hedge funds and other investors to borrow shares they don’t own and sell them in the hope that the price falls. If it does, they buy them back at the cheaper price, return them to their owners and pocket the difference.

No ‘Immediate Changes’

The FSA has “no plans for immediate changes” to domestic rules requiring investors to report new short positions of 0.25 percent or more in companies in the financial industry or making rights offers.

Europe-wide disclosure rules would help market players by allowing them to have common practices and reporting tools across the region, said Darren Fox, a regulatory lawyer at Simmons & Simmons in London.

“There should be no flexibility of European member states to go beyond” CESR in setting stricter rules, Fox said today. Country-specific rules are a “compliance nightmare.”

CESR closed its comment period for industry groups to submit thoughts on proposed disclosure rules yesterday, and will issue a final report by the end of the year. The European Commission would then review the CESR paper ahead of a vote on any rule change by the European Parliament. In all, it could take about three years for new rules to be introduced, Fox said.

The CESR plan would require short sellers to tell national regulators within a day of any short sale of 0.1 percent or more of a company’s share capital, and to inform the public if it hit 0.5 percent. The plan was criticized as expensive and difficult to implement by investment banking and fund representatives at a hearing last month in Paris.

Reemt Seibel, a spokesman for CESR, declined to comment on the FSA statement.

To contact the reporter on this story: Heather Smith in Paris at

To contact the editor responsible for this story: Anthony Aarons at

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