A new reporting regime for holders of net short positions in
shares traded on the Hong Kong Stock Exchange is proposed to come
into effect on 18 June 2012.
Hong Kong already has a stringent short selling regime that was
introduced after the market turmoil of the 1998 Asian Financial
Crisis (only "covered" short selling is now permitted
subject to the seller meeting certain eligibility requirements).
Following the Lehman collapse in September 2008, the Securities and
Futures Commission (SFC) considered it unnecessary to make any
immediate changes to the existing regime, unlike regulators in
some other markets where short selling activities were either
restricted or banned. Instead, in 2009, the SFC embarked on a
market consultation process with a proposal to make short
selling activities more transparent to the SFC.
Objective of the new regime
The objective of the new regime is to increase the SFC's
understanding of any stock-specific or marketwide risks on a weekly
(and, if necessary, daily) basis by increasing overall transparency
of short selling activities in the market. Principally, this will
enable the SFC to assess whether it needs to take any regulatory
action to prevent disruption to the market.
The new rules will require that a person holding a short
position as beneficial owner of "specified shares" (the
scope of the regime does not extend to positions held through
derivatives), the value of which equals or exceeds the
prescribed thresholds, report its position to the SFC on a weekly
basis. The SFC will then publish the aggregated reported short
position for each stock on its Web site, but this disclosure will
not reveal publicly the names or positions of individual short
sellers. Failure to comply with the new reporting regime will be a
criminal offence unless the person with the reportable short
position has a reasonable excuse.
Preparation for compliance
In anticipation of the rules coming into force, the SFC is
encouraging market participants to start preparing now for changes
to their systems and procedures to make sure they will be in a
position to comply with the new reporting requirements. The SFC
also is encouraging participants to subscribe to an email
service that will provide subscribers with alerts on matters such
as: the implementation timetable; the publication of FAQs; and the
publication of the list of specified shares subject to the
reporting regime. The subscription for these alerts can be accessed
here; (tick the box for "Short
Position Reporting Related Matters").
Key features of the regime
Particular features of the reporting requirements are:
A short position in relation to any specified shares is defined
as the position in those shares that a person has as a result of
selling the shares at or through the Hong Kong Stock Exchange or by
means of any one or more specified authorized automated trading
services, or any combination of these methods of selling, where (a)
at the time of each sale comprised in the position, the person did
not have a presently exercisable and unconditional right to vest
those shares in the purchaser, or (b) each sale comprised in the
position was the subject of a short selling order.
A net short position must be reported to the SFC if as at the
close of trading on the Friday of any week (reporting day) the
short position value held in a stock equals or exceeds the
lesser of (i) HK$30 million (approximately US$3,870,000), and
(ii) 0.02% of the value of the total number of specified shares
issued by the applicable listed company. The value is calculated by
multiplying the closing price of the shares on the reporting day by
the total number of shares of the applicable listed company then in
short position held on a reporting day must be reported to the
SFC within two business days after that reporting
The list of
"specified shares" will be published on the SFC's Web
site. Subscribers to the SFC's email service (see above) will
receive notice of any changes to that list.
The SFC will
introduce a Short Positions Reporting Service to its Online
Services Portal for market participants to submit the reportable
short positions online using a downloadable template.
specific reporting requirements where the short position is held in
trust, or by a collective investment scheme, or by a
partnership (such as an investment fund).
The SFC also
will be empowered in contingency situations to make reporting
a daily obligation, requiring reporting by the next business
The SFC will announce the actual implementation timetable once
it is finalized.
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