New Short Position Reporting Regime in Hong Kong
February 21, 2012
A new reporting regime for holders of net short positions in shares traded on the Hong Kong Stock Exchange is proposed to come into effect on 18 June 2012.
Hong Kong already has a stringent short selling regime that was introduced after the market turmoil of the 1998 Asian Financial Crisis (only "covered" short selling is now permitted subject to the seller meeting certain eligibility requirements). Following the Lehman collapse in September 2008, the Securities and Futures Commission (SFC) considered it unnecessary to make any immediate changes to the existing regime, unlike regulators in some other markets where short selling activities were either restricted or banned. Instead, in 2009, the SFC embarked on a market consultation process with a proposal to make short selling activities more transparent to the SFC.
Objective of the new regime
The objective of the new regime is to increase the SFC's understanding of any stock-specific or marketwide risks on a weekly (and, if necessary, daily) basis by increasing overall transparency of short selling activities in the market. Principally, this will enable the SFC to assess whether it needs to take any regulatory action to prevent disruption to the market.
The new rules will require that a person holding a short position as beneficial owner of "specified shares" (the scope of the regime does not extend to positions held through derivatives), the value of which equals or exceeds the prescribed thresholds, report its position to the SFC on a weekly basis. The SFC will then publish the aggregated reported short position for each stock on its Web site, but this disclosure will not reveal publicly the names or positions of individual short sellers. Failure to comply with the new reporting regime will be a criminal offence unless the person with the reportable short position has a reasonable excuse.
Preparation for compliance
In anticipation of the rules coming into force, the SFC is encouraging market participants to start preparing now for changes to their systems and procedures to make sure they will be in a position to comply with the new reporting requirements. The SFC also is encouraging participants to subscribe to an email service that will provide subscribers with alerts on matters such as: the implementation timetable; the publication of FAQs; and the publication of the list of specified shares subject to the reporting regime. The subscription for these alerts can be accessed here; (tick the box for "Short Position Reporting Related Matters").
Key features of the regime
Particular features of the reporting requirements are:
The SFC will announce the actual implementation timetable once it is finalized.