Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Tuesday, January 13, 2009

Where do the FSA short selling disclosures leave us?

The FSA has tried to add clarity to the position on short selling and – perhaps as always – to steer a middle course between contrasting positions.

Most believe that in ‘normal’ times, short selling has a useful role to play when used in investment strategies and risk management activities in providing liquidity, reducing transaction costs and helping ensure pricing efficiency. Others of course stick to the position that short selling is the only form of ownership that benefits if the investment does badly.

However these are far from normal times, and the FSA is reserving its position on what might happen next. It has cancelled the ban on short selling of financial stocks and extended the disclosure regime to June 09, when it will review again. IR people will instinctively take the view that any transparency by investors is a Good Thing, and leads to a fair market all round.

However concerns remain on the disclosure of short selling positions.

First, the thoroughly inconsistent approach by regulators around the world. In the US the ban on short selling was short-lived while Australia’s expires on January 27. But Belgium, France, Germany and Switzerland extended their bans until further notice. Organisations such as the International Organisation of Securities Commissions and the Committee of European Securities Regulators are working on harmonising short selling regulatory regimes.

Top of their harmonisation targets should be disclosure; the rules of disclosure of short positions are a patchwork quilt. Some regulators (Holland, Spain, Belgium have maintained them, whereas others (Germany) have extended them, and one – Portugal – has revoked them. No wonder that key fund associations in the US, UK and Australia joined forces last week to plead for a more consistent approach by regulators.

And these investor organsiations introduce a new note – disclosure should be to regulators only, and not to companies, or to the markets generally. This is not likely to be well received by those responsible for investor relations.


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