Industry welcomes trio of reforms including review of short-selling rules
Chancellor of the Exchequer Jeremy Hunt has introduced a ‘sweeping package of UK regulatory reforms’. This includes changing short-selling rules, to protect the confidentiality of investment managers’ positions, dealing with the clash between UK and US rules on payment for research, and rethinking securitisation rules to make them more flexible and help reboot the market.
Following HM Treasury’s review of short-selling rules in December 2022, the government has said it will:
- Replace the current public disclosure regime based on individual net short positions with one based on aggregated net short position disclosure
- Increase the current disclosure threshold for reporting net short positions to the FCA from 0.1% to 0.2%.
One vocal participant in the debate, the Alternative Investment Management Association, has welcomed this news. The association has highlighted how public transparency of short positions disincentivises firms from taking those positions, which, it says, can harm returns and market functioning. It has also pointed to the ‘disproportionate’ cost associated with reporting short positions to the FCA.
A parallel consultation has also now opened on the possibility of scaling back short-selling rules so that they no longer apply to sovereign debt and CDS.
The Chancellor has also addressed the ‘clash' between US and UK/EU rules on payment for research. The need for regulatory action was recently highlighted when the US Securities and Exchange Commission confirmed last year that it would ‘let lapse’ its no action relief which enabled firms subject to MiFID to pay for research on an unbundled ‘hard dollar’ basis without triggering the requirement for their research counterparties to register as investment advisers.