Part

FINMAR Financial Stability and Market Confidence Sourcebook

Chapter

Short selling

Printed on: 06/07/2024

Rulebook at: 01/10/2011

FINMAR 2

Short selling

FINMAR 2.1

Application and purpose

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Application

FINMAR 2.1.1

handbook-rule

This chapter applies to all persons who:

  1. (1) engage, or are intending to engage, in short selling in relation to relevant financial instruments; or
  2. (2) have engaged in short selling in relation to relevant financial instruments where the resulting short position is still open.
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Purpose

FINMAR 2.1.2

handbook-guidance

The purpose of this chapter is to set out rules and provide guidance in relation to short selling in order to promote the FSA's statutory objectives of:

  1. (1) maintaining confidence in the UK financial system; and
  2. (2) contributing to the protection and enhancement of the stability of the UK financial system.
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FINMAR 2.2

Disclosure of disclosable short positions

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Disclosure during a rights issue period

FINMAR 2.2.1

handbook-rule

A person who has a disclosable short position must provide disclosure of his position where:

  1. (1) the position relates, directly or indirectly, to securities which are:
    1. (a) the subject of a rights issue;
    2. (b) admitted to trading on a prescribed market in the United Kingdom; and
    3. (c) issued by:
      1. (i) a UK company; or
      2. (ii) a non-UK company for whom the UK prescribed market is the sole or main venue for trading the securities; and
  2. (2) the disclosable short position:
    1. (a) is reached or exceeded during a rights issue period; or
    2. (b) has been reached or exceeded immediately before the beginning of the rights issue period and has not fallen below a disclosable short position at the time the rights issue period commences.
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FINMAR 2.2.2

handbook-guidance
For the purposes of FINMAR 2.2.1R (1)(c)(ii), a UK prescribed market is the main venue for trading securities of a company where the volume of the securities traded on that market in the 12-month period immediately preceding the beginning of the company's rights issue period is greater than the volume of the securities traded on any other market, whether in the United Kingdom or elsewhere.
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Disclosure of a short position in a UK financial sector company

FINMAR 2.2.3

handbook-rule
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FINMAR 2.2.4

handbook-guidance
Where a UK financial sector company is in a rights issue period, a disclosure under FINMAR 2.2.3 R is sufficient to satisfy the disclosure requirement in FINMAR 2.1.1 R.
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FINMAR 2.3

Calculation of net short position

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Preliminary

FINMAR 2.3.1

handbook-guidance
This section contains provisions relating to the calculation of a net short position for the purposes of determining whether a person has a disclosable short position.
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FINMAR 2.3.2

handbook-rule
A net short position is the position remaining after deducting a long position (if any) that a person holds in relation to the issued capital of a company from a short position in relation to the issued capital of that company, where the value of the long and short positions is calculated in accordance with the provisions below.
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FINMAR 2.3.3

handbook-rule
The calculation of a net short position must take account of any form of economic interest, whether by virtue of a long or short position, in the issued capital of the company.
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FINMAR 2.3.4

handbook-rule
A net short position must be calculated on the basis of the position held at midnight at the end of each day that a person has the net short position.
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Long and short positions

FINMAR 2.3.5

handbook-rule

A 'long position' is the total of:

  1. (1) the number of shares a person holds in a company; and
  2. (2) any exposure, calculated on a delta-adjusted basis, to the issued capital of the company the person has through his holding of financial instruments which will result in the person making a profit, whether directly or indirectly, if there is an increase in the price or value of the shares of the company.
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FINMAR 2.3.6

handbook-rule

A 'short position' is the total of:

  1. (1) the number of shares in a company that a person has sold where the person has borrowed or needs to borrow or purchase shares to settle the transaction and the shares have not yet been returned to the lender, or borrowed and returned to the lender, or purchased, as the case may be; and
  2. (2) any exposure, calculated on a delta-adjusted basis, to the issued capital of the company the person has through his holding of financial instruments which will result in the person making a profit, whether directly or indirectly, if there is a decrease in the price or value of the shares.
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Calculating short positions: particular cases

FINMAR 2.3.7

handbook-rule

For the purposes of calculating a net short position when a company is in a rights issue period:

  1. (1) a long position in the nil paid rights cannot be deducted from a short position in relation to the company; and
  2. (2) any short position in the nil paid rights must be taken into account.
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FINMAR 2.3.8

handbook-guidance
Where a person has an economic exposure to the issued capital of a company by virtue of his interest in a basket, index or exchange traded fund, the value of the exposure to the company should be included in the calculation of his net short position.
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FINMAR 2.4

Responsibility for disclosure

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Discretionary and non-discretionary managers

FINMAR 2.4.1

handbook-rule
Where a person has appointed one or more discretionary investment managers to manage some or all of his investments, the person must make any disclosures required under FINMAR 2.2.1 R or FINMAR 2.2.3 R in respect of any disclosable short position, unless FINMAR 2.4.2 G applies.
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FINMAR 2.4.2

handbook-guidance

Where a person ("P") has appointed:

  1. (1) a discretionary investment manager to manage some or all of his investments, P may authorise that discretionary investment manager to make any disclosures required by FINMAR 2.2.1 R or FINMAR 2.2.3 R on P's behalf in relation to the investments managed by that discretionary investment manager;
  2. (2) more than one discretionary investment manager to manage some or all of his investments, P may authorise another person (such as the operator of an AUT, ICVC or any other fund) to make any disclosures required by FINMAR 2.2.1 R or FINMAR 2.2.3 R on P's behalf.
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FINMAR 2.4.3

handbook-rule

Where a discretionary investment manager or another person has been authorised by a person ("P") to make any disclosures required by FINMAR 2.2.1 R or FINMAR 2.2.3 R on P's behalf, he must:

  1. (1) provide disclosure or ongoing disclosure as required under FINMAR 2.2.1 R or FINMAR 2.2.3 R of P's position; and
  2. (2) clearly identify the person on whose behalf he is making the disclosure.
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FINMAR 2.4.4

handbook-rule
Where a discretionary investment manager manages investments for more than one person, he must provide disclosure or ongoing disclosure under FINMAR 2.2.1 R or FINMAR 2.2.3 R in respect of the aggregate net short position of all the portfolios managed by him.
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FINMAR 2.4.5

handbook-rule
Where a person whose investments are managed by a non-discretionary investment manager has a disclosable short position, the person must make any disclosures required under FINMAR 2.2.1 R or FINMAR 2.2.3 R in respect of his position.
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FINMAR 2.4.6

handbook-guidance
A person whose investments are managed by a non-discretionary investment manager and who has a disclosable short position may authorise his non-discretionary investment manager to make any disclosures required by FINMAR 2.2.1 R or FINMAR 2.2.3 R on his behalf in respect of his position.
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FINMAR 2.4.7

handbook-rule

Where a non-discretionary investment manager has been authorised by a person to make any disclosures required by FINMAR 2.2.1 R or FINMAR 2.2.3 R on that person's behalf, he must:

  1. (1) provide disclosure or ongoing disclosure as required under FINMAR 2.2.1 R or FINMAR 2.2.3 R of the person's position; and
  2. (2) clearly identify the person on whose behalf he is making the disclosure.
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Groups

FINMAR 2.4.8

handbook-rule
Where one or more companies in a group is required to disclose a disclosable short position, each company must make a separate disclosure of its own position unless FINMAR 2.4.9 G applies.
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FINMAR 2.4.9

handbook-guidance
One company in a group may make a disclosure of a disclosable short position held by one or more companies in the group, provided that the disclosure clearly states the name of the company or of each of the companies, as the case may be, which holds a disclosable short position.
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