Europe: CESR proposes pan-European short selling disclosure regime

The Committee of European Securities Regulators has published a consultation paper containing a proposal for a pan-European short selling disclosure regime. The CESR's proposed disclosure regime is wider in scope than the FSA's current disclosure regime because it is not limited to the shares of financial institutions. The CESR's proposed regime is explained in the consultation paper as follows:

It is based on a two-tier system for the disclosure of significant net short positions held in shares admitted to trading on an EEA regulated market or an MTF. When a short position reaches a specified initial threshold, the position holder (the ‘short seller’) would be obliged to make a private disclosure to the regulator of the most liquid market for the share in which the position was held. Further such disclosures would be required at specified subsequent increments. If the position reached a second-tier threshold, the short seller would then be required to make also a public disclosure for its position to the market as a whole. Further disclosures would be required if the short positions crossed subsequent incremental thresholds and would also be necessary if the positions fell below the any of the trigger thresholds, including the initial trigger thresholds".

The disclosure regime is justified in the following terms:

CESR considers that improving the transparency of short selling would have distinct benefits which would outweigh the associated costs. Greater disclosure would both help deter market abuse and reduce the risks of disorderly markets posed by short selling. It would provide early warning signs of a build up of large short positions, thereby alerting regulators to potentially abusive behaviour and enabling them to monitor and take action more effectively. Also, facilitating ready access to information on short selling would provide informational benefits to the market, improving insight into market dynamics and making available important information to assist price discovery".