Summary of changes

Whilst the new regime retains the core features of the current UK short selling regime, targeted adjustments have been proposed which are designed to ‘reduce unnecessary and disproportionate costs which may inhibit or discourage short selling activity’ whilst maintaining transparency of short selling activities in the UK market.¹

The proposed reforms of the UK SSR include changes to:

• Public Disclosure: Whilst position holders will still be required to report net short positions (NSPs) in shares admitted to trading on a UK trading venue to the FCA when they are at, above, or subsequently fall below the reporting threshold (0.2% of issued share capital of the issuer) and each 0.1% increment, the FCA intends to only publish the aggregated anonymised NSPs, without naming individual position holders. This should mitigate the risk of inadvertently revealing trading strategies of position holders, encouraging short squeezes (e.g., because of ‘herding’ activities) and ‘retaliation’ against position holders.
• Position reporting submission deadline: Position holders are to be given more time to report their NSPs to the FCA as the reporting deadline will be extended from 15.30 (UK time) T+1 to 23.59 (UK time) T+1. This change will be particularly helpful to position holders based outside of the UK.
• List of reportable shares: The FCA will publish and maintain a reportable list of shares that will be in scope of the UK SSR based on updated criteria and considerations (the RSL). This means that position holders will no longer have to individually work out which shares are within scope of the regime and should reduce the risk of technical breaches. In addition:
  • The RSL will be machine readable, reviewed by the FCA every two years and updated (at least) every month.
  • The RSL will go live two months before the New SSR comes into force.
• Calculations: The FCA provides the following clarifications in relation to the calculation of the NSPs:
  • The NSP can be calculated at any point before the position report is submitted based on the position (e.g., the issued share capital of the issuer and the long/short position of the position holder) as at midnight at the end of the relevant trading day. This broadly reflects current market practice, but it is a useful clarification.
  • The FCA will provide new guidance on the sources of information that can be used for determining the issuer’s issued share capital. These include Companies House filings, information from commercial data providers and DTR disclosures. Whilst this guidance is helpful, it falls short of proposing a ‘golden source’ for such calculations.
  • The FCA is proposing to continue to require position holders to include positions held through index derivatives and index tracking ETFs in their NSP calculations.
  • The exclusion of convertible bonds from the calculation will be maintained.
• Group reporting: The FCA is proposing to tweak the group reporting requirements to avoid gaps or double counting. Unhelpfully, positions managed by different asset management entities within the same group will continue to be required to be reported on an individual investment manager basis, rather than being aggregated at the group level.
• Waivers: Position holders will be permitted to apply for waivers from the requirement to report in exceptional circumstances (e.g., material systems outages which impact the ability of position holders to report), which is a helpful mitigant against the risk of technical breaches.
• Market maker notifications: The reforms include provision to simplify and streamline the exemptions regime, including:
  • The reduction of the deadline for notifying the FCA of the intended use of the market maker exemption from 30 calendar days to 15 calendar days.
  • The simplification of the process for existing market makers to notify the FCA of their intention to extend the exemption to cover new financial instruments.
  • The removal of the requirement to provide volume estimates in market maker exemption notifications, where such activities have been conducted in a share for less than six months.
  • The introduction of a transition provision to allow legacy market makers’ exemptions to remain in place until 1 June 2027. This means that market makers will need to submit new exemption notifications to the FCA no later than 1 June 2017.
• New online exemption notification and reporting system: The FCA intends to automate and simplify the notification and position reporting system, which will include a bulk submission functionality to enable position holders to upload and submit multiple positions simultaneously. The new forms will be made available to position holders during the interim period. However, as noted above, the FCA does not intend to ‘port’ legacy exemptions across to the new system, which means that firms will have to reapply for the exemptions.
• Cover arrangements: As well as the position holders needing to be entitled to receive the shares on or before the settlement of the short sale, the FCA provides clarification that they will also need to ensure that settlement can be effected when due.
• Record-keeping of cover arrangements: The new rules will clarify that records demonstrating appropriate ‘cover agreements and arrangements’ should be maintained for at least five years rather than for five years.²
• Exercise of emergency powers: The FCA also confirms that the bar for exercising its emergency intervention powers (e.g., to prohibit, restrict and request further information) in relation to short selling will remain ‘high’.

Sovereign debt

The rules applicable to sovereign debt are not specifically covered in the FCA consultation paper, on the basis that this has already been addressed in the UK SSR. However, it is important to note that, in line with the UK SSR, the existing disclosure regime for sovereign debt and the prohibition of uncovered short sales of sovereign debt and UK sovereign credit defaults swaps will be abolished when the New SSR comes into force.

Timing

The FCA will publish its policy statement and final rules two months in advance of the commencement date (which is yet to be confirmed).

The new SSR will be implemented in two phases as follows:

• Phase 1: The new systems for calculating and publishing NSPs and the RSL will come into effect on the commencement date.
• Phase 2: Six months after the commencement date, the FCA will update its systems for position reports and market maker exemption notifications.

Conclusion

Whilst the proposed changes to the UK SSR represent a departure from the EU short selling regime, some of the proposed UK rules appear to align with the new US short selling rules (e.g., anonymised public disclosure of NSPs).

Although the targeted reforms will be welcomed by market participants, there is still scope for further change. Therefore, market participants should actively engage with the FCA during the consultation process to ensure a sensible outcome is reached. In this regard, market participants will have until 16 December 2025 to respond to the consultation paper.

Feel free to reach out to our team if you would like to learn more about the changes to the UK short selling regime.

Our team include: Karen Butler, Josh Dambacher, and Christopher Hilditch in London, and Marc Elovitz, Kelly Koscuiszka, William Barbera, and Adriana Schwartz in New York.