FSA tackles short selling transparency

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UK- The UK Financial Services Authority and several market participants have produced a series of possibilities for disclosure of short selling in the UK. At a meeting hosted by the FSA and attended by hedge funds, prime brokers, securities lenders and several corporates it was unanimously agreed that the issue of transparency within short-selling had to be addressed.

FSA Chairman, Howard Davies stressed the point that short selling was not regarded as ‘an abusive activity”, and that there had not been a “persuasive case for restrictions, or a prohibition on short-selling”, but a it was necessary to find a measure for cost-efficient disclosure to meet the UK market’s needs.

One option discussed was the refinement and consequent publishing of the UK central clearing and settlement body, Crest’s, stock borrowing figures as a proxy to short selling activity in the cash market.

In the cash equity market it was suggested that all short sales could be marked and information disclosed as in the US and Hong Kong. This would, however, capture only a limited picture of short selling in the UK, and could possibly displace more shorting activity to other markets.

A more expensive solution would be to disclose short sales in any instrument to the market, therefore delivering a comprehensive picture of short selling activity. Information would be difficult and expensive to collect, however.

The FSA called for greater disclosure among hedge funds ‘selling short’ back in July, amid criticism in the industry that the practice is having a detrimental effect on already-depressed markets.

A discussion paper on the topic will be published by the FSA in October, with a full enquiry to take place next year.

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