International management consultancy Oliver Wyman published a report today that provides the first clear evidence that rules requiring public disclosure of short positions make it more expensive and difficult for all participants to invest in equity markets.

The report finds that the public short sale disclosure regime in effect in the United Kingdom has caused: (i) bid-ask spreads for UK stocks subject to disclosure to widen by over 45%, (ii) total trading volume in affected UK stocks – including long trades – to decrease by 13%, and (iii) short selling liquidity to be impaired by approximately 20%. Together, these effects limit the ability of businesses to raise capital and create jobs, and raise costs for pension funds, retail funds, and other investors. Click here to read MFA's news release about the report.  Click here to read a description of the report.

MFA submitted a letter to the UK House of Lords in response to a Call for Evidence from the Subcommittee regarding the European Commission’s Communications on ensuring safe and sound derivatives markets. In our letter, we: (i) discussed the benefits of the derivatives markets; (ii) noted that derivatives helped market participants to hedge their risk exposures during the worst months of the financial crisis; (iii) agreed that the European Commission’s approach to monitor and, when appropriate, to impose minimum collateral levels with respect to non-cleared derivatives transactions is the correct level of oversight; and (iv) encouraged the European Commission to coordinate its regulation and oversight of the derivatives markets with other regulators around the world to prevent market segmentation

MFA submitted a letter to the Committee of European Securities Regulators (CESR) today in response to its Consultation Paper on a Proposal for a Pan-European Short Selling Disclosure Regime. In our letter, we recommend that: (i) any proposed rules should require that reporting to a CESR member be non-public and fully protect the confidentiality of the information; (ii) any proposed rules should be based on a de minimis reporting threshold for private reporting to regulators of at least 0.5%; (iii) if there is evidence showing that public disclosure is necessary and beneficial, any proposed rules should only require regulators to make available to the public aggregated anonymised data on short selling using the information privately reported to them; and (iv) if the cost of producing aggregated anonymised data is too high, CESR should consider recommending that regulators publicly disclose anonymised versions of individual private reports of short positions, but at a higher threshold (such as 2%).

MFA submitted a letter to the International Organization of Securities Commissions in response to its consultation report on “Policies on Direct Electronic Access” (DEA). In our letter, we request that any guidance issued by IOSCO on DEA include recommendations regarding market and intermediary confidentiality safeguards and controls to protect customer trade data and to assure investors that the recipients of such information would use it exclusively for regulatory purposes. We also recommend that markets and intermediaries should have flexibility in determining the appropriate method of regulation for each type of DEA depending upon their own regulatory and technical capabilities and legal requirements.

MFA submitted a letter to the U.K. Financial Services Authority in response to its proposed short selling disclosure measures, recommending that short positions be privately reported to the FSA.

MFA submitted comments to the IOSCO Technical Committee in response to its Consultation Report, Regulation of Short Selling. In the letter, MFA commends the Technical Committee’s four principles for the regulation of short selling and offers certain recommendations to improve market stability and investor confidence.