Mark Hynes - thoughts on corporate disclosure

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

Thursday, July 16, 2009

EU-wide short selling disclosure rules?

Useful liquidity providers, and an informed source of true market value, or scavenger taking advantage of ill fortune in bad times? The hedge fund industry is fighting back against the latter image, notably in the FT whilst regulators look at how to ensure that the problems of last year are not seen again. CESR’s proposals would require a significant amount of reporting.

We have seen so far 3 types of reaction from regulators; outright bans on short selling of financial stocks, now mostly being unwound, the reintroduction of US uptick rules preventing any trade being executed at a lower price than the one prior, and increased disclosure of short positions.

CESR has proposed a two-tier system under which a short position of 0.1 per cent would have to be disclosed to the regulator of the most liquid market in which the stock trades. A short position of 0.5 per cent or greater would have to be publicly disclosed to the market as a whole. CESR also has proposed incremental steps of 0.1% of issued capital for disclosure.

This is as compared to the proposed regimes in Europe, where a standard of 0.25% disclosure to the market as a whole is emerging as the proposed norm.

A couple of questions: first does the EU actually need a common standard? Given the wildly different approaches take thus far by national regulators who understand their markets, possibly not.

And what would IR teams do with the information if they receive it? Simply knowing would be helpful, perhaps, but engagement in the same way as with a traditional long investor is unlikely.

Finally, an interesting part of the CESR consultation refers to any short selling, whether done through a regulated exchange, or MLTF. Another sign that the activities of dark pools are coming under increasing transparency.


  • At 1:07 pm, Blogger LexAequitas said…

    While the EU itself may not need a common standard, it would certainly make it far easier for multinational companies to comply with, and hence do business in, the EU if there were a common standard. The proliferation of different forms of regulation and disclosure, rules around whether voting or non-voting shares need to be disclosed as a percentage of either total shares outstanding, shares outstanding including treasury shares, or total voting shares outstanding -- with different security types taken into account in each country -- creates sisyphean difficulties in generating correct disclosures.


Post a Comment

<< Home