Short selling measures – FSA ban lifted and disclosure obligation relaxed

United Kingdom

FSA confirmed on 14 January that the short selling ban will be lifted, as anticipated, tomorrow (16 January 2009). In FSA’s view, the market conditions that initially made the ban necessary no longer persist and it has emphasised that short selling is a “legitimate technique” in normal market conditions.

The disclosure requirement, which was introduced by the FSA at the same time as the ban will, however, remain in force (in an amended form) until 30 June 2009 and will continue to act as a deterrent to abusive market behaviour.

Given the urgency with which the initial measures were introduced to counteract rapidly falling share prices in UK financial institutions in the wake of the collapse of Lehman Brothers (September 2008), there was no opportunity to consult with the UK market before implementing the ban and disclosure requirement. This time around, FSA set out its proposals in a consultation paper and gave the UK market a short consultation period (5 days) to respond (CP09/1 “Temporary short selling measures”). FSA received an impressive 33 responses, the majority of which were in favour of FSA’s proposal to:

1. allow the ban to expire; and
2. retain the disclosure obligation but in an amended form until 30 June 2009.

Since our Law Now summarising EEA short selling measures, regulators, including the UK Financial Services Authority, have continued to develop their approaches to short selling in the current economic climate. We have updated the summary of short selling measures circulated in that Law Now (dated 29 September). For ease of reference, we have indicated those jurisdictions where there has been No change in their position on short selling since the September Law Now.

Additional information is also available on the Committee of European Securities Regulators (“CESR”)’s website; to view it please click here.

We have consulted with our colleagues within the CMS network and other firms that we work closely with to provide an accurate statement of the current position in the various EEA jurisdictions.

Please click here to access a full summary of the current measures adopted by EEA regulators.