On 11 November 2024, the draft Short Selling Regulations 2024 were published on legislation.gov.uk, along with a draft explanatory memorandum.

Background

The Financial Services and Markets Act 2023 repeals assimilated law in financial services, subject to commencement. That assimilated law will be replaced with rules set by the UK financial services regulators.

Purpose of the draft Regulations

The draft Regulations establish a new legislative framework for the regulation of short selling, creating designated activities for short selling in order to give the Financial Conduct Authority (FCA) rulemaking powers related to those activities and powers to intervene in exceptional circumstances. The aim of giving the FCA additional rulemaking responsibilities is to ensure that financial services firms and consumers will benefit from agile, tailored rule-making that suits UK markets.

Policy changes introduced by the draft Regulations

The draft Regulations make a series of substantive changes to the short selling regulatory regime in the UK, implementing the changes announced in July 2023 in the Government’s response to its Short Selling Regulation (SSR) Review and in November 2023 in the Government response to the consultation on aspects of the SSR related to sovereign debt and credit default swaps.

The key substantive policy changes are:

• The introduction of a requirement for the FCA to publish anonymised aggregated net short positions based on all individual position notifications it receives. This is a change to the SSR where the firms were required to publish individual net short positions above 0.5% of issued share capital.
• The removal of restrictions on uncovered short selling of sovereign debt and sovereign credit default swaps (SCDS) or sovereign debt notification requirements, which were contained in the SSR. However, the draft Regulations do maintain emergency intervention powers for sovereign debt and SCDS in the same way as other financial instruments.