Industry associations respond to UK short selling regulation review

The Alternative Investment Management Association (AIMA) responded to the UK finance ministry’s call for evidence on the short selling regulation (SSR), describing it as an “important strand of the Edinburgh reform package that has the potential to help drive UK growth and competitiveness”.

AIMA CEO Jack Inglis said in a statement: “The key priority for our members in the context of the review of the SSR is that public transparency of individual firms’ short positions should no longer be required. The existing public disclosure requirement heavily discourages short positions due to the risk of issuer retaliation or copycat trading. As short selling liquidity decreases, it becomes more expensive and difficult for all investors to execute trades, whether long or short. We call on the government to address this deeply problematic aspect of the current regime to the overall benefit of the UK’s financial market.”

The SSR was introduced by the European Union (EU) and was brought into the UK statute book after the UK’s exit from the EU. In implementing the outcomes of the Future Regulatory Framework (FRF), the UK Government will repeal this regulation, and replace it with a regulatory regime tailored to the jurisdiction’s markets.

The International Securities Lending Association (ISLA) also replied to the consultation, and noted in a statement that the following statement from the UK regulator was encouraging: “Short selling plays a healthy role in the proper functioning of financial markets. It provides essential liquidity to markets which drives investment in British firms, emboldens economic growth, and helps ensure investors pay the right price when investing in shares.”

In another response, the International Swaps and Derivatives Association (ISDA) and the Association for Financial Markets in Europe (AFME) highlight their overall support for the short selling regime and welcome the opportunity to suggest areas that may benefit from targeted reform. ISDA considers that the current prohibition in the short selling regime for sovereign credit default swaps could be removed as it has led to inefficiencies in the markets.

ISDA and AFME members support some changes to the market maker exemption, including making the application process easier. They also suggest reverting to a higher reporting threshold for net short positions to the Financial Conduct Authority to reduce costs and administrative burdens.

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