City regulator could restrict short selling under proposed legislation
Published alongside the Autumn Statement on Wednesday, the Treasury revealed draft regulation that could see the Financial Conduct Authority given powers to restrict short selling.
The regulation would grant the financial regulator the power to “prohibit or impose conditions” on people who have entered into a short sale of a share or debt instrument.
It would be given the same power over transactions that would “confer a financial advantage” in the event of a decrease in price or value.
In order to exercise this power, however, the FCA must believe that there are “adverse” events or developments which constitute a “serious” threat to financial stability of market confidence in the UK.
The FCA must also be sure that by exercising this power, it would not have a detrimental effect on the efficiency of the financial markets that is “disproportionate to its benefits.”
When these restrictive powers are used, the FCA will be required to publish a notice which explains its reasoning and why the move would not have a detrimental impact on markets.
The Treasury intends to legislate the measure next year on short selling.