Short Sellers to Gain Anonymity as FCA Moves to Boost UK Markets

The Financial Conduct Authority is proposing sweeping changes to regulations for investors taking short positions against UK listed companies. Under the new rules, individual investors who hold net short positions exceeding 0.5 per cent of a company’s share capital will no longer have their names disclosed in a public register. Instead, the FCA will aggregate all short positions surpassing 0.2 per cent and publish a single total figure per company.

Currently, transparency measures require the publication of investor names, which can act as a deterrent to short-selling. The FCA argues that these reforms will support growth by lowering barriers for market participants and cutting unnecessary costs imposed on firms. According to the regulator, sufficient controls and market oversight will remain in place to ensure orderly trading despite the reduction in individual transparency.

These changes move the UK regime closer to the lighter regulatory approach taken in the United States and away from stricter EU requirements. The government and regulators see short-selling, though sometimes controversial, as an important mechanism for exposing overvalued shares, improving liquidity, and aiding healthy price discovery in the markets. Short-sellers typically borrow shares, sell them, and aim to buy them back at a lower price, profiting if the stock falls.

Critics warn that companies may be left in the dark as to which hedge funds or investors are active in targeting their shares, potentially exposing them to unanticipated bear raids. The question of market integrity remains, as less transparency around concentrated short positions could leave companies vulnerable to manipulation.

Alongside the introduction of anonymity, new rules will provide short-sellers with more time to report their positions to the FCA, lessening the immediate reporting burden. However, this adjustment may reduce the timeliness of data available to the wider market. Law firms represent the view that hedge funds will welcome the changes, as they reduce the risk of copycat trades, aggressive short squeezes, and the unwanted revelation of proprietary trading strategies.

Simon Walls, executive director of markets at the FCA, described the reforms as a significant step in their campaign to streamline regulation and bolster growth. He noted that the new system for aggregated reporting and simpler requirements would strike an effective balance between easing participation and maintaining adequate transparency. The reforms are currently under consultation until 16 December.