Transparency concerns as FCA makes short sellers anonymous
Firms short-selling UK-quoted companies will no longer have to reveal their identities in the latest deregulation drive by the UK’s financial watchdog.
The Financial Conduct Authority (FCA) is consulting on a rule change to suspend disclosures of the companies that hold a short position in listed businesses, instead only publishing the total short positions in each firm.
This shift represents a departure from EU rules that require all short positions above 0.5 per cent of a listed firm’s share capital to be publicly disclosed, moving the UK closer to rules used in the US.
The threshold for privately informing the regulator about a short position is also expected to be raised from 0.1 per cent of a firm’s share capital to 0.2 per cent.
The FCA said the move would “support growth by removing unnecessary barriers which might inhibit or discourage short selling”, which “can play an important role by supporting price formation, providing liquidity, and facilitating risk management”.
The watchdog added that the new regime would maintain “sufficient visibility and controls over short selling to manage any risks to support orderly and effective financial markets”.
Simon Walls, the FCA’s executive director of markets, said: “These proposed changes are another important milestone in our drive to become a smarter regulator and to support growth.
“Aggregated net short positions and simplified processes for reporting will enhance and streamline the short-selling regime in the UK, reducing burdens for capital market participants while ensuring the market still gets the transparency it needs.”
The consultation is expected to last for seven weeks, closing on 16 December, with the new rules set to kick in later in 2026.
Short sellers helped by pro-growth approach
The move is the latest sign of watchdogs finding ways to ease the regulatory burden imposed on businesses after Chancellor Rachel Reeves urged regulators to adopt a pro-growth approach.
It is hoped the change will bolster the UK’s appeal as a global financial centre by reducing the number of ‘copycat’ shorts that often hit stocks when a major fund discloses a short position.
But some have flagged transparency concerns, warning the move opens a door to hedge funds to increase covert short-selling activity in ways which could destabilise equity markets.
Patrick Sarch, Head of UK Public M&A at law firm White & Case, said: “These proposed changes come just as we are predicting an increase in short selling activity across the London market. The reforms are unlikely to have a material impact on that uptick in activity as there is no substantive change to what investors can do – it will simply mean there is less transparency regarding who is short of what.
“In fact, many investors don’t mind being named or actively prefer to be. The real impact will be on the issuers who will have less visibility on who is holding short positions in their stock and whether those positions are concentrated or spread across multiple investors.
“Ultimately, these changes won’t make a material difference to the efficiency or attractiveness of the UK market. There will be slightly less compliance friction for short sellers and their intermediaries, but at the expense of transparency for issuers and other investors.””
In April, the FCA said as many as 140 pages would be removed from the lengthy handbook, as it opened a consultation on scrapping data collection requirements.
Chancellor Rachel Reeves wrote to the City regulator in November, asking it to encourage more risk-taking and prove it supported economic growth.
The FCA said around 16,000 firms would benefit from proposed rule changes in data gathering, which include the scrapping of some update requests on stock lending and complaints.
The Financial Policy Committee at the Bank of England said in April that it was looking for ways to simplify regulatory interventions and improve productivity, The roll-out of artificial intelligence across the financial system was seen as having the “potential to bring productivity gains”.