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The UK government passed new Short-Selling Regulation (SSR) that makes a series of changes to the Regulatory regime for short-selling, implementing the changes announced in July 2023 in the government response to the Short Selling Regulation Review and in November 2023 in the government response to the consultation on aspects of the SSR related to sovereign debt and credit default swaps.
The new Regulation requires the UK Financial Conduct Authority (FCA) to publish anonymized aggregated net short positions based on all individual position notifications it receives. This is a change to the SSR where the Firms were required to publish individual net short positions above 0.5% of issued share capital.
The SSR contained various provisions related to Sovereign Debt and Dovereign Credit Default Swaps (SCDS). As announced previously, this instrument does not include restrictions on uncovered short selling of Sovereign Debt and SCDS or Sovereign Debt notification requirements. However, this instrument does maintain emergency intervention powers for Sovereign Debt and SCDS in the same way as other financial instruments.
The approach to monitoring this legislation is engagement with industry to understand its initial and ongoing impact. The instrument does not include a statutory review clause. Tulip Siddiq, Economic Secretary to the UK Finance Ministry, was cited in the explanatory memorandum as stating: “It is not proportionate to include a review clause in this instrument because the estimated annual net direct cost to business is less than £10 million [$12.2mn]”.
Rob Hailey, Head of EMEA Government Affairs at the Managed Funds Association, said in a statement: “The Alternative Investment industry applauds the passage of the changes to the Short-Selling Regulations in Parliament. Short-selling improves market efficiency, liquidity, and price discovery. It also helps to combat corporate waste, fraud, and abuse. These important reforms are a win for the UK economy and will benefit UK Capital Markets, increase capital flows, and reinforce the country’s standing as a leading global financial center.”
Kifaya Belkaaloul, Head of Regulatory at Fintech Firm NeoXam, said in emailed commentary: “The UK Government’s shift to anonymised, aggregated Data for short-selling is a welcome step towards balancing market transparency with the privacy of investment managers. This new approach ensures that key market trends remain visible, while also addressing concerns over excessive exposure of individual positions. It marks a thoughtful evolution in Regulation, reflecting a more sophisticated understanding of Financial Markets post-Brexit.”
When the UK left the EU, the body of EU legislation that applied directly in the UK at the point of exit was transferred onto the UK statute book by the European Union Withdrawal Act 2018. This new Regulation establishes a new legislative framework for short selling, creating designated activities for short-selling, giving the Financial Conduct Authority (FCA) rulemaking powers related to these activities and powers to intervene in exceptional circumstances.
