The FSA published its Market Watch Newsletter – No. 42 (MW42) on 14 August 2012 which sets out the FSA's intended approach to implementation of the EU Short Selling Regulation (Regulation 236/2012) (Regulation). While MW42 does not contain any new law or guidance it is helpful to understand the FSA's intended approach to implementation of the Regulation. The Regulation is due to come into force on 1 November 2012.
MW42 confirms that the FSA intends to remove the UK's existing domestic short position disclosure regime covering selected UK financial stocks and UK stocks undertaking rights issues with effect from 1 November 2012.
The Regulation requires the FSA to consider whether to impose a temporary prohibition or restriction on short selling or otherwise limit transactions in a financial instrument where the price of that instrument has fallen by a specified amount or more during a single day in relation to the previous closing price. Helpfully, the FSA intends to consult on proposals for a framework to ensure consistency and provide clarity to the market on when the FSA will and will not intervene, although no indication has been given as to when we can expect the consultation to be published.
Public disclosures of net short positions of 0.5 per cent or above will be required from 1 November 2012. This represents an increase in the current disclosure threshold of 0.25 per cent. The FSA has confirmed that disclosure will be made through its website – disclosure will no longer be required through a Regulatory Information Service. The FSA is also working on a web-based solution for disclosure to it of net short positions in shares of 0.2 per cent and above and net short positions of sovereign debt (either 0.1 per cent or 0.5 per cent of the issued sovereign debt depending on the issuer).
MW42 reiterates that those market participants intending to rely on the exemptions for market makers and primary dealers will need to inform the FSA of that intention at least 30 days in advance of doing so. The FSA has indicated that notifications can be made at any time within 60 calendar days before 1 November 2012. Any firms intending to rely on either exemption may want to diarise that notifications can be made between 3 September and 1 October.
The FSA does not intend to publish its own FAQs in relation to the Regulation – ESMA will produce FAQs at European level. The FSA has, however, provided contact details for the person to contact in the event of any questions.
Click here for the MW42.
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