Market traders and investors will get a chance to express their views on proposed new short-selling rules in Europe next month, when the Paris-based Committee of European Securities Regulators holds a public hearing on its planned two-tier disclosure system.
Under the CESR proposals, outlined in July, hedge funds and other short sellers could be obliged to reveal short positions of as little as 0.1 per cent of a company’s outstanding equity to the regulator of the most liquid market for the stock.
These disclosures would remain private – between the investor and the regulator – but a short position which reached 0.5 per cent of more of the outstanding stock would have to be publicly disclosed.
The rules would be applied to any shares admitted for trading on a regulated market within the European Economic Area of a “multilateral trading facility”, a term used to describe a type of share trading platform under the Mifid directive.
Market participants would also need to take account of any position that amounted to an “economic exposure” to a particular share – so that exchange-traded and over-the-counter derivatives would also be covered by the proposed rules.
Disclosure calculations and reports would be done on a net basis, with long positions subtracted from the short positions.
CESR has drawn up the proposals – which are now out for consultation – in the wake of the market turbulence in the second half of 2008. This prompted many European Union member states to impose emergency short-selling bans on certain categories of shares. Many of these restrictions still persist, although sometimes in modified form.
But some investors have already questioned whether the suggested disclosure threshold is too low. They will get the opportunity to discuss the issue face to face with officials in an afternoon session in Paris on September 9. The closing date for written responses to the consultation is September 30.
In the US, the Securities and Exchange Commission last week also announced new short-selling disclosure rules in which aggregate data in individual stocks would be provided daily and individual transactions would be made available with a one month lag. The SEC is also considering whether to reinstate its old “uptick rule” which said stocks could only be sold short when the previous price movement was upwards.
US regulators have also said they are watching international developments closely and would consider amending their plans if an international consensus begins to develop.
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