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MFA recommends targeted reforms to EU short selling rules

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The Managed Funds Association (MFA) has written a letter calling on the European Commission (EC) to enhance the competitiveness of EU capital markets by implementing targeted reforms to the EU Short Selling Regulation (SSR).

The letter is in response to the EC’s call for evidence on rationalising reporting requirements.

The MFA’s letter emphasises that short selling is an essential tool that improves market efficiency, helps uncover corporate fraud, and enables greater risk management. However, MFA stated that the current EU SSR framework hampers the potential advantages of short selling in the EU.

The MFA’s letter proposes reforms to unlock the benefits of short selling in the EU including replacing the existing individual public disclosure of short positions with aggregated public disclosure of net short positions. The MFA highlights that research has found that publicly disclosing individual manager short positions limits short selling activity, causes herding behaviour, and increases market volatility.

The MFA also want top see the creation of a centralised portal for short sale reporting. Managers currently face a burdensome process where they submit positions on portals in individual member states with different calculation methodologies.

In addition, the MFA believes there would be greater clarity around the use of short selling bans, but that the regulators should According to the MFA, empirical evidence suggests that short selling bans fail to achieve their intended objective and instead harm investors through reduced liquidity, higher transaction costs, and distortion of price discovery.

“We are encouraged by the European Commission’s commitment to reevaluating, rationalising, and simplifying reporting requirements,” said MFA Head of Global Government Affairs Jillien Flores. “Short selling is a powerful tool that benefits investors and markets by enhancing market liquidity, promoting price discovery, and exposing corporate fraud. Targeted modifications to the EU SSR will enhance the competitiveness of EU capital markets, and unlock greater investment across the continent.”

The letter highlights that alternative asset managers invest heavily in European markets, including in EU-listed shares and EU sovereign debt, and provide valuable trading flows and liquidity to EU trading venues and counterparties.

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