National fund associations call for a sensible short selling regulatory regime

Meanwhile the Investment Company Institute (ICI), Investment Management Association (IMA) and the Investment and Financial Services Association (IFSA) have come together to reaffirm their support of prudent regulatory oversight of short selling and recommend a sensible global response to regulatory reform in this area. Collectively, they represent US$15.54 trillion of assets under management.

The ICI, IMA and IFSA say they are all committed to supporting regulatory reform designed to enhance investor confidence and combat market manipulation. Consequently, the development of a practical short selling regulatory regime is a critical matter for securities markets around the world in order to promote confidence and stability.

Short selling is a long established investment activity and an integral part of global capital markets. Short selling plays a crucial role in legitimate active investment strategies and risk management activities designed to enhance performance and maximise returns to investors. It also contributes to market liquidity, reduces transaction costs and assists to ensure pricing efficiency.

ICI, IMA and the IFSA say they are firmly opposed to market manipulation or abuse, and believe that where the specific concern is market manipulation, regulators should have both the information and capability to monitor and investigate thoroughly. They, therefore, support timely disclosure directly to the chief market regulator or supervisor of short sale positions above a de minimis amount.

It is essential that the regulatory regime adequately protect confidentiality of the data provided to regulators. The three bodies say argue that they are opposed to public disclosure of short selling information, because of its potential to increase downward selling pressure, facilitate the frontrunning of a fund's security positions and reduce the incentive for proprietary research. While it is critical that market regulators have access to trading information of individual market participants to protect against market abuse, they say, public disclosure should be designed to promote market confidence and not to facilitate trading strategies. We believe that if any public disclosure regime is to be established effectively, this is best achieved by a market or regulator publishing a single aggregated net short-interest position for each stock on a periodic, but sufficiently delayed, basis.

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