• UK Treasury consultation seeks views on the government’s proposal to delete aspects of the Short Selling Regulation related to sovereign debt and credit default swaps.
• Follows UK Treasury December 2022 call for evidence on short selling rules.
• Also follows UK Chancellor July 2023 announced Mansion House reforms

New Consultation

• Specifically, the consultation seeks views on the government’s proposal to delete the aspects of the regime related to sovereign debt and credit default swaps as part of the government’s work to replace the SSR with a UK-tailored regulatory regime.
• Based on evidence gathered to-date, UK GVT proposes to entirely do away with the requirements currently placed on investors when taking out short positions in sovereign debt or sovereign CDS, and the related reporting requirements.
• The government’s view is that this is an unnecessary part of the regulatory regime that does not achieve its policy objective that we have inherited from the EU.
• UK raised concerns about aspects when the SSR was being negotiated in EU, on the basis they could have a detrimental impact on liquidity in UK sovereign debt markets.
• Under proposed approach, sovereign debt and CDS would be kept in scope of the FCA’s emergency intervention powers; in practice, means that in future the UK’s short selling regime will focus on equities, with FCA keeping its ability to intervene in exceptional circumstances for broader range of financial instruments incl. sovereign debt and CDS.
• The government’s view is that this approach will not in any way impact market integrity or financial stability, while reducing burdens for market participants.
• Interested in views from market participants on benefits and risks of the proposal ahead of making a final decision re sovereign debt and CDS aspects of the regime.
• Part of wider program to deliver a smarter regulatory framework, tailored to the UK.
• The new consultation document should be read alongside the December 2022 Call for Evidence on the SSR and the government response.

Effectiveness

• The consultation closes at 11:59pm on 7 August 2023.