U.K. – FCA Primary Market Bulletin 47 Re: Short Selling

U.K. – FCA Primary Market Bulletin 47 Re: Short Selling

On 26 January 2024, UK FCA issued PMB 47 focused on short selling rules.

  • UK FCA issued primary market bulletin (PMB) 47 that covered Short Selling Regulation developments as well as the Credit Rating Agency UK Market Share Report for 2022.

Short Selling Regulation

  • Following consultation process on the UK Short Selling Regulation, UK GVT has recently published documents outlining proposals to change current UK regime for short selling.
  • It has also introduced legislation which will change the minimum reporting threshold for net short positions in shares on 5 February 2024 which will affect all those involved.
  • After UK Treasury’s Short Selling Regulation Review: Call for Evidence and Response, UK GVT published a draft statutory instrument (SI) alongside explanatory policy note.
  • The draft SI sets out scope of proposed new UK short selling regime and provides UK FCA with related rule-making powers to specify firm-facing short selling requirements.
  • It also includes emergency intervention powers for UK FCA to require additional short selling related information and to restrict short selling in exceptional circumstances where there is thought to be serious threat to financial stability or market confidence.
  • The new powers mean short selling in shares and related instruments is defined as a new designated activity, and that UK FCA will have the power to make various rules.
  • These new powers to make rules on short selling will be subject to FCA consultation.

Sovereign Debt and Credit Default Swaps

  • Following July 2023’s Short Selling Regulation: Consultation – sovereign debt and credit default swaps, the UK Treasury has now published its response to the plans.
  • Key proposals made by UK GVT include removing requirements placed on investors when they are taking out any short positions in both sovereign debt or sovereign CDS.
  • Also, the related reporting requirements to retain sovereign debt and CDS in scope of UK FCA’s emergency intervention powers for short selling, same as other instruments.

Implementation of Notification Threshold

  • UK GVT introduced the Short Selling (Notification Threshold) Regulations 2023, StIn 2023/1258, increasing the notification threshold for the reporting of net short positions in shares to UK FCA, from 0.1% to 0.2% of the total issued share capital of an issuer.
  • These Regulations will come into force on 5 February 2024, and UK Treasury has also now published an accompanying Explanatory Note for this legislation to provide clarity.
  • UK FCA has been working on implementing this higher reporting threshold and will be ready to receive notifications at the 0.2% threshold from 5 February 2024 via ESS portal.
  • For open positions at 0.2% and above that are reached before, on, or after 5 February 2024, closing reports will be required as usual when the position does fall below 0.2%.