Hedge Funds:
Short Selling
Legitimacy of Short Selling
Position: Short selling is a legitimate investment activity.
Rationale: Short selling enables markets to quickly and accurately adjust securities prices to reflect investor opinions about valuation.
Where stated: EAC - FSA DP 17 Short Selling (PDF)
Anonymity of Short Sellers
Position: Short sellers should remain anonymous if they are not affiliated with the subject company.
Rationale: Anonymity of short sellers is appropriate because:
- Doing so is consistent with reporting on long investors
- Disclosure would expose short sellers and their lenders to additional market risks
- Disclosure would make investors less willing to sell short, thereby impairing price determination, and
- Identification of short sellers could send false signals and intentions to the market.
Where stated: EAC - FSA DP 17 Short Selling (PDF)
Identification of Insiders Who Sell Short
Position: Insiders who sell short should be identified no later than the end of the close of business on the day of the trades, together with information about the dates and amounts of such trades.
Rationale: Insiders have no reason to sell short except on the basis of inside information. Even in the case where the insider is hedging a long position in the shares, the insider is taking actions based on concern that the share price will decline. Such actions conflict with their roles as managers or board members and come at the expense of other shareowners.
Where stated: EAC - FSA DP 17 Short Selling (PDF)
Short Interest Data Availability
Position: Regulators should make short interest data available daily.
Rationale: This would eliminate the informational advantages professional and institutional investors have over less well-connected retail investors.
Where stated: EAC - FSA DP 17 Short Selling (PDF)
Trade Ticket Identification of Short Selling
Position: Firms should note short selling transactions on related trading tickets.
Rationale: This process would yield helpful information to regulators about the extent of securities lending by specific financial institutions and assist regulators in understanding the degree of systemic risk present in the market at any point in time.
Where stated: EAC - FSA DP 17 Short Selling (PDF)
Up-Tick Rules
Position: Up-tick rules are beneficial to financial markets.
Rationale: Such rules discourage market abuse by short sellers.
Where stated: EAC - FSA DP 17 Short Selling (PDF)