SFC publishes consultation conclusions and further consults on short position reporting

19 October 2011

Contacts

The Securities and Futures Commission (SFC) published on 18 October 2011 its conclusions following its public consultation on the draft Securities and Futures (Short Position Reporting) Rules (the Draft Rules) in May 2011 (see related briefing SFC consults on subsidiary legislation to implement short position reporting). The SFC is also seeking further comment on what is reported.

The SFC conclusions are that the Draft Rules will be implemented broadly in its original form, subject to the following proposed modifications:

  • Only those acting without reasonable excuse will commit an offence under section 3(1): this shift away from strict liability is in response to industry comment and is in line with provisions for offences of a similar nature in the Securities and Futures Ordinance (SFO).
  • Removal of the need to disclose the “Position Composition”: this amendment reflects industry concerns surrounding the resource implications to differentiate between on and off exchange positions, and the lack of impact it would have on the informational value of reports.
  • Only net short positions should be reported: this amendment to section 3(2) of the Draft Rules is a response to concerns over the operational and infrastructure-related difficulties in reporting on a gross basis expressed by members of the industry. The SFC, mindful that a pragmatic and cost-effective approach is necessary to implement the new reporting regime in a timely manner, invites comments on this proposal by 4 November 2011.

The SFC has also restated its previous position, in particular:

  • At least 24 hours notice must be given by the SFC prior to the introduction of enhanced reporting requirements. This is in line with the SFC’s view that it should maintain flexibility in order to discharge its regulatory duties in exceptional circumstances.
  • The beneficial owner of the short position is ultimately responsible for reporting. Where agency reporting occurs, for example where a fund manager reports on behalf of a fund, the responsibility to report will remain with the principal. In the case of trusts, the legal responsibility to report will fall on the trustee.
  • Whilst the SFC aims to implement short position reporting by the end of Q1 2012, they intend giving the industry reasonable lead time to prepare compliant reporting systems and procedures.

In addition, the SFC will publish “FAQs or guidance” in due course to clarify the reporting obligations where more than one person owns a reportable short position. A robust reporting system is currently envisaged, whereby one designated partner or joint owner files a report on behalf of all beneficial owners. The SFC will also explore publication of updated lists of shares of the constituent companies of the Hang Seng Index, referred to as “specified shares”, for the purposes of determining whether a reportable short position exists.

View Consultation Conclusions and Further Consultation on the Securities and Futures (Short Position Reporting) Rules

View SFC unveils conclusions and further consults public on short position reporting rules