FCA outlines key elements of new short selling regime
Following the Treasury’s Short Selling Regulation Review: Call for Evidence and its Response the UK 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, the FCA notes 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. The Treasury currently plans to lay the final version of the statutory instrument before Parliament in 2024.