Cesr plans to tighten rules for short selling

Hedge funds and other short sellers of equities would be forced to reveal short positions of as little as 0.1 per cent of a company’s outstanding stock under proposals outlined by the Committee of European Securities Regulators.

Cesr has proposed a two-tier system under which a short position of 0.1 per cent would have to be disclosed to the regulator of the most liquid market in which the stock trades. A short position of 0.5 per cent or greater would have to be publicly disclosed to the market as a whole.

The ruling would apply to any stock trading on a regulated market or multilateral trading facility within the European Economic Area.

The proposals are the latest attempt to bring more transparency to short selling in the wake of the financial crisis. However, Cesr’s plans go further than previous proposals by requiring notification of positions of just 0.1 per cent to regulators, a fraction of the size of long positions that typically need to be disclosed.

Cesr said the 0.1 per cent limit would allow it to pursue enquiries with participants suspected of “abusive” short selling, but the Alternative Investment Management Association said the threshold was “quite low”, with the 0.25 per cent barrier proposed by UK regulators “more practical”. “The lower any threshold the greater will be any reporting burden,” AIMA added.