UK Financial Watchdog Eases Short-Selling Regulations for Firms

Firms engaged in short-selling UK-quoted companies will soon be able to do so anonymously, as the Financial Conduct Authority (FCA) undertakes a significant deregulation initiative. This change will eliminate the requirement for companies holding short positions to disclose their identities, with only the total short positions in each firm to be made public. This information was first reported by the Financial Times.

New Regulations Shift Towards US Standards

Under the proposed changes, the FCA plans to raise the threshold for privately informing the regulator about a short position from 0.1 percent to 0.2 percent of a firm’s share capital. This marks a move away from existing European Union rules, which mandate that all short positions exceeding 0.5 percent of a listed firm’s share capital be publicly disclosed. By adopting these new regulations, the UK aligns more closely with practices seen in the United States.

The deregulation drive is part of a broader initiative encouraged by Chancellor Rachel Reeves, who has called for a pro-growth approach from UK regulators. The government aims to enhance the UK’s attractiveness as a global financial centre by reducing the amount of publicly available information regarding sensitive equity strategies.

Potential Impacts and Concerns

While the FCA’s changes are seen as a way to stimulate growth, there is concern that easing restrictions could lead to increased short-selling activity by hedge funds, potentially destabilizing equity markets. Critics argue that greater anonymity could allow for more aggressive trading strategies without adequate oversight.

In April, the FCA announced plans to remove approximately 140 pages from its extensive regulatory handbook. This move is part of a consultation process aimed at eliminating unnecessary data collection requirements. The FCA estimates that around 16,000 firms could benefit from these proposed rule changes, which include the elimination of certain update requests related to stock lending and complaints.

The Bank of England’s Financial Policy Committee has expressed interest in simplifying regulatory interventions and enhancing productivity. They have identified the integration of artificial intelligence across the financial system as a potential driver of productivity gains.

As the UK continues to adapt its financial regulations, the focus remains on balancing the need for growth with the stability of the markets. The outcomes of these regulatory changes will be closely observed by both investors and regulators in the coming months.