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MFA expresses concern over short sale disclosure recommendations

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The Managed Funds Association has expressed concern regarding a proposal from the Committee of European Securities Regulators to require investors to publicly disclose short sale positions. 

MFA has also expressed support for the proposal from the Hong Kong Securities and Futures Commission, under which investors would privately report short positions to regulators. 

The CESR report recommends that its members adopt rules requiring investors to disclose publicly each short position in an equity security that exceeds a threshold level of 0.5 per cent of a company’s issued share capital. MFA recently released an independent study that indicates that public disclosure regimes harm markets for all investors. 

MFA says it supports efforts to enhance investor confidence, improve existing regulatory frameworks, and establish effective rules for capital markets, but says it is important that regulators take into account the potential important effects of new disclosure requirements on investors, markets and capital formation. 

A recent independent quantitative analysis of existing public short sale disclosure requirements in the UK by Oliver Wyman demonstrates that public disclosure of short positions has led to higher costs for all investors, including pension funds, endowments and retail funds.

MFA supports the goal of increasing the level of information on short selling available to regulators, and believes that this goal could be achieved through private reporting of short positions to regulators. Private reporting would provide regulators with comprehensive short selling information that would allow them to identify and investigate any potentially abusive activity, while mitigating the consequences of public disclosure to markets and investors.

In this respect, MFA believes the regime announced by the Hong Kong Securities and Futures Commission is preferable for both markets and investors. Under the SFC regime investors would privately report short positions to regulators, which would then publish aggregated, anonymous information for each security on a delayed basis.

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