We have regulated short selling and certain aspects of credit default swaps (CDS) in the UK since 1 November 2012, under the Short Selling Regulation (SSR).
End of the transition period
Following the end of the transition period, the EU SSR and the Level 2 regulation (regulation EU 918/2012) were converted into domestic law as amended by the Short Selling (Amendment) (EU Exit) Regulations 2018.
Binding Technical Standards adopted under the EU SSR as at the end of the transition period have also been converted into UK law and apply as amended by the Technical Standards (Short Selling) (EU Exit) Instrument 2019.
ESMA Guidelines and Q&A documents adopted under the SSR should be treated in accordance with our general approach to EU non-legislative materials. Firms should generally continue to follow and have regard to such materials to the extent that they are relevant under UK SSR.
We published our Primary Market Bulletin 21, 24 and 32 in which we advise market makers of changes to the regulatory obligations under UK SSR. PMB 21 and 32 are particularly important for firms using the market maker exemption under the SSR, as they explain the key conditions for the exemption and equivalence of EEA regimes.
Instrument scope and notification requirements
The UK SSR applies to the short selling of sovereign debt, shares that are admitted to trading on a UK trading venue, and related instruments, and the use of credit default swaps (although an exemption for shares exist where the principal trading venue of a share is located in a third country).
It requires holders of net short positions in shares admitted to trading on a trading venue in the UK (unless they are exempt) or UK sovereign debt to make notifications to us once certain thresholds have been breached. See more on notification and disclosure of net short positions.
The UK SSR also outlines more restrictions on investors entering into uncovered short positions in shares or UK sovereign debt.
Our intervention powers
Significant price falls
The UK SSR gives us powers to prohibit or restrict short selling or limit transactions when the price of various instruments admitted to trading on a UK trading venue (including shares, sovereign and corporate bonds, and ETFs) has fallen more than the appropriate percentage threshold from the previous day’s closing price.
FINMAR 2.5.6 sets out details on the exchange rate used for converting EUR into GBP for the purposes of calculating a significant fall in value (article 23(1)(b) of the Commission Delegated Regulation (EU) No 918/2012. From 1 October 2020, the corresponding sterling price for €0.5 is £0.46.
Exceptional market conditions
We also have powers under the UK SSR to address adverse events or developments that pose a serious threat to financial stability or market confidence in the UK.
These powers include:
- extending the scope of the notification and disclosure regime to include additional financial instruments admitted to trading on a UK trading venue
- requiring lenders of financial instruments admitted to trading on a UK trading venue to notify any significant change in their fees
- restricting short selling, or other transactions that confer a financial advantage in the event of a decrease in price of a financial instrument admitted to trading on a UK trading venue, across classes of instruments or all instruments
- restricting, or limiting, entering into UK sovereign credit default swap transactions
If we make such a decision, we must make it public. We will do this through an announcement via a PIP and on our current restrictions and prohibitions web page.
SSR and supplementary texts
For more information about short selling see the SSR and supplementary texts:
- Short Selling Regulation (EU) No 236/2012
- Short Selling (Amendment) (EU Exit) Regulations 2018 (UK SSR)
- Commission Delegated Regulation (EU) No 826/2012
- Commission Implementing Regulation (EU) No 827/2012
- Commission Delegated Regulation (EU) No 918/2012
- Commission Delegated Regulation (EU) No 919/2012
- FCA 2019/54: Technical Standards (Short Selling) (EU Exit) Instrument 2019)