Newsletter for primary market participants
January 2024 / No. 47
About this edition
Welcome to the 47th edition of the Primary Market Bulletin (PMB).
Short Selling Regulation: Recent developments
Following a consultation process on the UK Short Selling Regulation, the Government has recently published various documents outlining its proposals to change the regulatory regime for short selling in the UK. It has also introduced legislation which will change the minimum reporting threshold for net short positions in shares on 5 February 2024.
In this article, we summarise those documents and the key changes the Government has proposed. We also set out the work we have undertaken to implement the upcoming threshold change.
Draft Statutory Instrument – Short Selling Regulations 2024
Following the Treasury’s Short Selling Regulation Review: Call for Evidence and its Response the Government has published a draft statutory instrument (SI) alongside an explanatory policy note. This draft SI and the policy note set out how the Government currently intends to change the regulatory regime for short selling in the UK, but do not set out all of the elements of this new proposed regime.
In broad terms, the draft SI sets out the scope of the proposed new UK short selling regime and provides the FCA with a range of related rulemaking powers to specify firm-facing short selling requirements in the FCA handbook. It also includes emergency intervention powers for the FCA to require additional short selling-related information and to restrict short selling in exceptional circumstances where there is a serious threat to financial stability or market confidence, or to prevent a disorderly decline in the price of a financial instrument.
Among the key elements set out for the new proposed regime, we note the following:
- Short selling in shares and related instruments is defined as a new designated activity.
- The FCA will have the power to exempt shares from requirements and is required to publish a list of shares to which certain of the new short selling rules apply.
- The FCA will be required to publish the net short positions received from short sellers on an aggregated basis by issuer.
- The FCA will have the power to make rules to exempt market making activities and stabilisations from certain short selling requirements.
The use of these new powers to make rules on short selling by the FCA will be subject to FCA consultation.
The Call for Evidence was part of the Government's wider programme to repeal and replace retained EU law in financial services. The Government asked for comments on the draft SI by 10 January 2024. We understand that the Treasury currently plans to lay the final version of the statutory instrument before Parliament in 2024.
Short Selling Regulation: Government response – sovereign debt and credit default swaps
Following July 2023’s Short Selling Regulation: Consultation – sovereign debt and credit default swaps, the Treasury has published its response. This document summarises consultation responses received and sets out the Government’s current proposed approach for the new UK regime.
The key proposals made by the Government are:
- to remove requirements currently placed on investors when taking out short positions in sovereign debt or sovereign CDS, and the related reporting requirements
- to retain sovereign debt and CDS in scope of the FCA’s emergency intervention powers for short selling, which will be treated the same as other financial instruments
As part of the Government’s proposal for the FCA to retain its emergency intervention powers on short selling, the Government will require the FCA to set out its approach to using these powers. We will consult on this approach in due course.