EU starts rollout of share short-selling regime

March 2, 2010

By Huw Jones

LONDON, March 2 (Reuters) – Securities regulators in the European Union said on Tuesday they will start rolling out requirements for reporting net short positions in shares as part of wider efforts to improve transparency in markets.

Short selling of shares is a practice favoured by hedge funds and involves selling a stock that is not already owned, in the hope its value will fall by the time a purchase is required to settle the trade. The difference in price is pocketed as profit.

Interim short selling curbs were introduced by some EU states in late 2008 when bank shares came under pressure, but regulators want a single, bloc-wide regime to end confusion among investors.

The Committee of European Securities Regulators (CESR) said it has submitted a report to the EU’s executive European Commission in which it recommends the introduction of a pan-EU disclosure regime for net short positions in shares.

For copy of report click on

It stops short of recommending an outright ban, which some EU states introduced temporarily, saying legitimate short selling plays an important role in financial markets by contributing to price discovery and increasing liquidity.

“In the meantime, those CESR members that already have powers to introduce a permanent disclosure regime, as elaborated in the report, will begin the process of implementing this regime,” CESR said in a statement.

“Those CESR Members who do not have the necessary legal powers will aim towards implementing this regime on a best efforts basis, until an EU regime is adopted.”

EU Internal Market Commissioner Michel Barnier will decide whether he wants to turn CESR recommendations into hard EU law and if they should be toughened up.


Under the new regime, a short position of 0.2 percent or more must be disclosed to the supervisor. When the position reaches the 0.5 percent of a share and thereafter it should be disclosed publicly as well, spelling out not only the stock shorted but also who is managing the position.

This marks a watering down of CESR’s draft regime which kicked off private disclosure at 0.1 percent after industry complained it was too burdensome.

The public disclosure threshold is higher than in a regime put in place by the Financial Services Authority in Britain, where most EU based hedge fund managers operate.

“It enshrines what the FSA has already been doing. The good news is that you get a pan-EU regime and the threshold for public disclosure has gone up,” said Andrew Baker, chief executive of the Alternative Investment Management Association, an industry lobby.

“The bits we still contest is that we don’t think it serves anyone’s interest that the disclosure of individual managers of funds be in the public domain,” Baker told a Reuters summit.

Markets would be better served by knowing aggregate short positions for each stock, Baker said.

Financial experts at law firm Morrison & Foerster said the FSA, which had no immediate comment, was likely to raise its public threshold for disclosures in line with CESR.

Washington-based Managed Funds Association, a global alternative investment body, said a study by Oliver Wyman consultancy showed that public disclosure of short positions has bumped up costs for all investors.

A regime announced on Tuesday in Hong Kong was the best solution as it reported individual positions privately to regulators with aggregated data for public disclosure that excluded names of position holders, it said. [ID:nTOE621087]

Positions in exchange-traded and over-the counter derivatives should also be included along with short positions in the cash equities markets.

The disclosure should be made on the day after a threshold was crossed though market-making activities are exempt from disclosure. CESR said it does not expect disclosure to be costly for firms but its impact assessment gave no figures.

The regime applies to all shares traded on stock exchanges and rival platforms known at multilateral trading facilities. (Reporting by Huw Jones; Editing by Ruth Pitchford and Rupert Winchester) ((Reuters messaging:; + 44 207 542 3326;

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