Short-selling regulation: post-Brexit UK framework
The UK Short Selling Regulation (UK SSR), retained from EU SSR following Brexit, governs the disclosure of net short positions in UK-listed shares and sovereign debt, and prohibits certain types of naked short selling. Since Brexit, the FCA has taken steps to diverge from the EU framework, consulting on reforms to the notification and disclosure regime in CP23/11 and publishing a Policy Statement in 2024 that implements significant changes to the threshold at which short positions must be disclosed publicly versus notified privately to the FCA. Understanding the current state of the UK SSR framework — and the transition arrangements for the new rules — is important for any fund or firm with material short positions in UK equities.
Under the current UK SSR framework (post-reform), holders of net short positions in UK-listed shares above 0.1% of the issued share capital must notify the FCA privately. Public disclosure on the FCA's register is required at 0.5%, reflecting a significant change from the pre-reform position where the public disclosure threshold was 0.5% but the private notification threshold was 0.2%. This change means that positions between 0.1% and 0.5% require FCA notification but do not appear on the public register. Firms must assess their positions at least daily and submit notifications by 3:30pm on the business day following the day on which the threshold is reached or crossed.
The calculation of net short positions requires aggregation across all legal entities within a group that are acting in concert, and must take account of short positions arising from trading in shares, positions in financial instruments that confer a financial advantage with respect to price movements (including options and CFDs), and index positions to the extent that they are attributable to individual constituent shares. The complexity of this calculation means that firms frequently rely on position management systems and compliance monitoring tools, but must ensure that these tools are accurately configured for the UK SSR calculation methodology rather than the EU SSR methodology.
The FCA has enforcement powers under the UK SSR including the ability to impose financial penalties for notification failures and to require the disclosure of positions. The FCA has used these powers — typically in cases of persistent failure to file or systemic miscalculation rather than minor single-day errors. Firms with significant short book activity should conduct regular audits of their notification history against their position data to ensure completeness and accuracy, and should have a documented exception procedure for handling notifications that are identified as late or incorrect.
Interaction with market abuse regulation
Short selling activity is a potential indicator of market abuse, particularly where large short positions are established shortly before adverse corporate announcements. Firms with significant short books should ensure that their market abuse surveillance programmes include specific scenarios covering the correlation between short position establishment and subsequent material announcements, and that their investment research procedures ensure that short selling decisions are not influenced by material non-public information obtained in other parts of the business.