The government is looking to ditch EU-era short selling rules and will scrap a requirement for individual investors to reveal their bets against companies as part of a post-Brexit push to scrap red tape in the City.
Ministers have been consulting with industry on regulation around short-selling, in which firms look to profit from the share price of a listed company falling.
Under the current regime, investors have to reveal their individual position to the market when it crosses a threshold of 0.1 per cent of a company’s total issued share capital.
However, the government said today it will replace the current public disclosure regime of individual short positions with an “aggregated net short position disclosure regime”.
The government will also hike the disclosure threshold for short reporting to the Financial Conduct Authority from 0.1 per cent to 0.2 cent.
In its response to the consultation today, the government said it “believes that these changes will ensure that the UK’s regulatory framework for short selling supports effective market functioning” while protecting investors and not “placing a disproportionate burden on industry”.
The move comes after the Chancellor Jeremy Hunt set out plans to overhaul the short selling regime in the Edinburgh Reforms in December as part of the government’s post-Brexit deregulation drive.
Short selling can be a controversial practice as firms reveal their positions to the market and publish damning reports that crater companies’ valuations.
Ministers said it recognised “there can also be risks associated with short selling, which can impact on wider market confidence”.
“The regulatory regime for short selling should facilitate short selling and the benefits it provides to orderly and effective market functioning, while protecting against risks,” the response said.
City Minister Andrew Griffith has however described short selling as an “important tool in financial markets” by revealing malpractice.
The move to ditch individual disclosures was hailed by some in the investment industry today as a move that will “strengthen the competitiveness of UK capital markets and solidifies its standing as a global financial centre”.
“Replacing individual manager public disclosure of short positions with aggregated net short position disclosure will unleash the benefits of short selling, including enhancing market liquidity, promoting price discovery, and exposing corporate fraud,” said Jillien Flores, head of global government affairs at Managed Funds Association.