European short selling disclosure rules cause dismay

A pan-European disclosure regime for short selling has been greeted with concern by hedge funds trade bodies.

The proposals from the Committee of European Securities Regulators (CESR) recommends short sellers should be required to tell regulators when they have short economic exposure of 0.2% or more to shares listed in the European Economic Area and when they change those positions by 0.1% or more.

Once short exposure hits 0.5%, CESR said public disclosure will be necessary.

In calculating their exposures CESR said hedge funds should include exchange traded and over the counter (OTC) derivatives as well as equities. This is a considerable increase in regulatory oversight which previously was largely confined to shares.

The Alternative Investment Management Association (Aima) said consistent rules for short selling throughout the European Unions (EU) were “desirable” and reporting short sales is preferable to banning the practice something that happened in September 2008.

Aima said reporting should be in aggregate form only. “Disclosure of individual positions should be made privately to the regulator and kept confidential in order to prevent potentially serious market distortions for no obvious benefit.”

CESR’s reporting thresholds risk being “overly burdensome on hedge fund managers and could swamp regulators with unnecessary information,” noted the trade organisation.

The US lobby group, Managed Funds Association (MFA), said it was concerned about public disclosure. It preferred the proposal from the Hong Kong Securities and Futures Commission for reporting shorts privately.

“MFA supports the goal of increasing the level of information on short selling available to regulators and believes that this goal could be achieved through private reporting of short positions to regulators,” said a MFA statement.

Short sellers have also come under attack from the Securities and Exchange Commission (SEC). The US regulator moved to limit the practice for all US-listed shares that fall by more than 10% in a day and continue falling.

Reporting obligations imposed by the Financial Services Authority remain for UK listed shares.