MFA has submitted comments to the European Commission (EC), commending it for announcing a series of measures and actions aiming to improve the competitive position of European Union (“EU”) businesses in global markets. MFA applauds the EC’s commitment to reevaluating, rationalizing, and simplifying reporting requirements for companies.
The letter emphasizes the importance of short selling as a tool to manage risk and maximize return that benefits both investors and markets in a number of ways. As such, MFA believes it is critical that any reforms to the current short selling rules in the EU (“EU Short Selling Regulations”) do not hinder the ability of market participants to engage in short selling either directly or indirectly. MFA recommends the following targeted modifications to EU Short Selling Regulations:
- Recalibrate Public Position Disclosure: Replace the existing individual public disclosure of short positions with aggregated public disclosure of net short positions. Research has found that publicly disclosing individual manager short positions limits short selling activity, causes herding behavior, and increases market volatility.
- Streamline Reporting to Regulators: Create a centralised portal for short sale reporting. Managers currently face a burdensome process where they submit positions on portals in individual member states with different calculation methodologies.
- Avoid Short Sale Bans: Provide greater clarity around the use of short selling bans, but refrain from imposing them. Empirical evidence suggests that short selling bans fail to achieve their intended objective and instead harm investors through reduced liquidity, higher transaction costs, and distortion of price discovery.
MFA believes that these policies can act as an important building-block toward the “rationalisation of reporting requirements” that the EC has set out to achieve. These targeted modifications would go a long way toward enhancing the attractiveness and competitiveness of the EU’s capital markets for alternative asset managers and institutional investors.