Hong Kong’s Securities and Futures Commission (SFC) is set to further tighten regulations on short selling, following the International Organisation of Securities Commissions’ (Iosco) recommendations.
The Commission is expected to implement measures to force fund houses and institutional investors to report their short positions in Hong Kong securities.
Other measures are also likely to include better settlement arrangement for short sellers, a better reporting system and more effective enforcement.
Short selling was banned in the US, UK, South Korea, Indonesia and Taiwan last year. But Hong Kong already has a tighter regime, which allows only covered short selling (short selling securities that you know you can source), so did not need to take drastic action.
“The proposed changes more or less mirror the Hong Kong regime, with a greater emphasis on transparency and disclosure,” said Alan Ewins, partner and head of Allen & Overy’s Asia financial services group.
Although not binding, the Iosco recommendations represent the full weight of the international securities organisations community, so it is likely that they will be adopted by other major regulators. “This is one of the first instances of the concept of colleges of regulators being brought to bear on the financial crisis,” said Ewins.
The SFC will decide whether short positions should be announced on an individual basis for every market player or at a broader level for individual stocks.
“A broader level for individual stocks would provide useful market intelligence on which stocks are under pressure, whereas individual basis player-by-player would show how actively participants were exposed to a particular stock,” said Ewins.
“Essentially, there is a balance to be struck given the other areas of protection for the market, including the ban on naked shorts and the uptick rule,” he added.
Tom Young