Targeted reforms will enhance the competitiveness of EU capital markets
Brussels, Belgium – Managed Funds Association (MFA) called on the European Commission (EC) to enhance the competitiveness of EU capital markets by implementing targeted reforms to the EU Short Selling Regulation (SSR) in a letter. The letter responds to the EC’s call for evidence on rationalising reporting requirements.
MFA’s letter emphasises that short selling is an essential tool that improves market efficiency, helps uncover corporate fraud, and enables greater risk management. However, MFA stated that the current EU SSR framework hampers the potential advantages of short selling in the EU. MFA’s letter proposes reforms to unlock the benefits of short selling in the EU:
- 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.
“We are encouraged by the European Commission’s commitment to reevaluating, rationalising, and simplifying reporting requirements,” said MFA Head of Global Government Affairs Jillien Flores. “Short selling is a powerful tool that benefits investors and markets by enhancing market liquidity, promoting price discovery, and exposing corporate fraud. Targeted modifications to the EU SSR will enhance the competitiveness of EU capital markets, and unlock greater investment across the continent.”
The letter highlights that alternative asset managers invest heavily in European markets, including in EU-listed shares and EU sovereign debt, and provide valuable trading flows and liquidity to EU trading venues and counterparties.
MFA’s comment letter also features an appendix that provides empirical research on short sale disclosure. The letter can be found here.
About the Global Alternative Asset Management Industry
The global alternative asset management industry, including hedge funds, credit funds, and crossover funds, has assets under management of €5.1 trillion (Q3 2023). The industry serves thousands of public and private pension funds, charitable endowments, foundations, sovereign governments, and other global institutional investors by providing portfolio diversification and risk-adjusted returns to help meet their funding obligations and return targets.
About Managed Funds Association
Managed Funds Association (MFA), based in Washington, DC, New York, Brussels, and London, represents the global alternative asset management industry. MFA’s mission is to advance the ability of alternative asset managers to raise capital, invest, and generate returns for their beneficiaries. MFA advocates on behalf of its membership and convenes stakeholders to address global regulatory, operational, and business issues. MFA has more than 170 member firms, including traditional hedge funds, credit funds, and crossover funds, that collectively manage nearly €2.8 trillion across a diverse group of investment strategies. Member firms help pension plans, university endowments, charitable foundations, and other institutional investors to diversify their investments, manage risk, and generate attractive returns over time.