Following the Treasury’s Short Selling Regulation Review: Call for Evidence and its Response, the UK Government has published a draft legislative instrument (SI) together with an explanatory policy note. This draft SI and policy note set out how the government currently intends to change the regulatory regime for short selling in the UK, but do not set out all the elements of this new proposed regime.
Broadly speaking, the draft SI sets out the scope of the proposed new short selling regime in the UK and gives the FCA a range of relevant rulemaking powers to set out the short selling requirements faced by firms in the FCA handbook.
It also includes emergency intervention powers for the FCA to require additional information about short selling and to limit short selling in exceptional cases where there is a serious threat to financial stability or market confidence or to prevent a disorderly fall in the price of a financial instrument .
Among the key elements set out for the new proposed regime, the FCA notes the following:
- Short selling in shares and related instruments is defined as a new defined activity.
- The FCA will have the power to exempt shares from requirements and must publish a list of shares to which some of the new short selling rules apply.
- The FCA will be required to publish net short positions taken by OTC sellers on an aggregate basis by issuer.
- The FCA will have the power to make rules to exempt market-making activities and consolidations from certain short selling requirements.
The FCA’s use of these new powers to make rules on short selling will be subject to consultation with the FCA.
The call for evidence was part of the government’s wider program to repeal and replace retained EU law in financial services. The government has asked for comments on the draft SI by 10 January 2024. The Treasury currently plans to table the final version of the statutory instrument before Parliament in 2024.