The Committee of European Securities Regulators (CESR) has just issued a report containing detailed proposals for short selling disclosure requirements. From the abstract:
This report contains CESR‟s proposal to the European Institutions for a pan-European short selling disclosure regime. It is based on a two-tier model for disclosure of significant individual net short positions in all shares that are admitted to trading on an EEA regulated market and/or an EEA MTF. However, the regime would not apply to shares admitted to trading on an EEA regulated market or an EEA MTF if their primary market is located outside the EEA. At the lower threshold of 0.2%, positions would be disclosed to the relevant regulator, at the higher threshold of 0.5% positions would be disclosed, in addition to the regulator, also to the market as a whole. All changes of position would be reported at increments of 0.1%, first to the regulator (from 0.3% until 0.4%) and then to the regulator and the market.
The proposals are driven by concerns that short selling "can be used in an abusive fashion to drive down the price of financial instruments to a distorted level, can contribute to disorderly markets and, especially in extreme market conditions, can otherwise have an adverse impact on financial stability."
What strikes me is that while the report does acknowledge that disclosure does not only generate benefits but also a range of costs, the report cites no evidence whatsoever that sheds more light on the magnitude of these costs and benefits, which would appear to be a prerequisite for a thorough cost/benefit analysis. Accordingly, we are left with the mere observation that "CESR considers that improving the transparency of short selling would have distinct benefits which would outweigh the associated costs."
The report is available here.
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