Essential Corporate News - week ending 31 August 2012

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On 30 August 2012, the Financial Services Authority (FSA) published Consultation Paper CP 12/21 which sets out proposed amendments to the FSA Handbook in relation to Regulation (EU) No 236/2012 on short selling and certain aspects of credit default swaps (the Short Selling Regulation). The Short Selling Regulation, which comes into force on 1 November 2012, is directly applicable but does leave some discretion to Member States with regard to the exercise of their powers and also leaves some matters to be dealt with by national law. In August 2012, the FSA published Market Watch 42 containing advance notice of the FSA's approach in a number of areas. The purpose of CP 12/21 is to seek views and comments on the FSA's policies regarding the exercise of discretion and how the FSA will implement the Short Selling Regulation in the UK.

The proposals contained in CP 12/21 include the following:

• Repeal of the domestic short selling regime: The current domestic short position disclosure regime covers selected UK financial stocks and UK companies undertaking rights issues. The Short Selling Regulation is broader, covering all financial instruments admitted to trading on a trading venue in the EU. The FSA is proposing to repeal the bulk of Chapter 2 of the Financial Stability and Market Confidence sourcebook (FINMAR 2) which contains the current short selling disclosure requirements in the UK with effect from 1 November 2012.
• Policy framework for use of temporary suspension powers: If the price of a financial instrument on a trading venue has fallen by a specified amount or more during a single trading day in relation to the previous closing price, the FSA would need to consider using its suspension and restriction powers in order to prevent a disorderly decline in the price of the instrument. The FSA is proposing that it would only intervene if: (i) it considers that the price fall is or may become disorderly; and (ii) it is satisfied that suspension of short selling or some other limitation of trading would prevent further disorderly decline in the price of the affected financial instrument.
• Disorderly price falls: The FSA sets out a non-exhaustive list of factors it will consider when ascertaining whether a fall in the price of an instrument is disorderly. These are: (i) whether there have been violent movements in the price of the financial instrument on the trading venue, including any sudden and significant step-changes in its price in the same trading session; (ii) whether there is evidence of unusual or improper trading in the financial instrument on a particular trading venue, which could indicate that either by design or effect there was pressure to set the price at a level that would be considered abnormal for the financial instrument; (iii) whether there are unsubstantiated rumours or evidence of dissemination of false or misleading information regarding the financial instrument and (iv) whether there is an obvious legitimate cause for the price fall, for example, the announcement of poor financial results.
• Exemption for market makers and authorised primary dealers: The Short Selling Regulation provides that some of its requirements (including short position reporting and conditions for undertaking short selling) do not apply to market-making activities or authorised primary dealers trading in sovereign debt. The FSA can prohibit the use of an exemption if it considers that the person does not satisfy the conditions of any exemption and guidance will be included in FINMAR 2.6 on the procedure for applying prohibitions.
• Penalties: The FSA is proposing to apply its current penalty regime, as set out in the Decision Procedure and Penalties manual (DEPP), to infringements of the Short Selling Regulation.
• Calculating significant falls in price: A Commission Delegated Regulation supplementing the Short Selling Regulation specifies the significant falls in price of financial instruments which would cause the FSA to consider whether they should make a regulatory intervention and one category for shares is whether the share price is EUR 0.50 or higher or the equivalent local currency. To convert a Euro figure into Sterling, the FSA will specify a fixed Sterling equivalent for EUR 0.50 - this will be the EUR/£ daily spot exchange rate of the Bank of England at the end of the first business day of October 2012 rounded up to the nearest penny. This figure will be notified to the market and used for the next 12 months unless there are significant fluctuations in the exchange rate in the intervening period, in which case the applicable exchange rate would be recalculated.
• Main national equity index: Various Level 2 measures implementing the Short Selling Regulation refer to the national equity index of the Member State. The FSA will treat the FTSE 100 index as the main national equity index for these purposes.　

Comments on CP 12/21 are requested by 20 September 2012.

(FSA, CP12/21 Short selling regulation – Handbook changes, 30.08.12)

On 30 August 2012, the UK Listing Authority (UKLA) published the third edition of its Primary Market Bulletin (Bulletin). The main purpose of the Bulletin is to communicate the practical implications of forthcoming changes to the UKLA Helpdesk which were proposed in Quarterly Consultation Paper No 32 (12/5) and which are due to come into effect from 1 October 2012.

The UKLA confirms that it is intending to proceed with its proposal to no longer accept requests for individual guidance that are made on a ‘no names’ basis. In doing so, the UKLA is intending to bring its practice in line with other practice across the rest of the FSA. The UKLA notes concerns raised by market participants about seeking individual guidance on a named basis, particularly at the early stage of a transaction, owing to a belief that, in the event of a leak, they would be obliged to make disclosures in accordance with the Disclosure and Transparency Rules (DTRs) when they would otherwise not be required to do so. The UKLA confirms that it will not make presumptions about the stage of a transaction solely because it has been contacted for technical advice. It also confirms that contacting the UKLA in this way does not create a disclosure obligation under the DTRs where one would not otherwise exist.

The UKLA intends to amend its proposals requiring all requests for individual guidance to be submitted to it in writing. In addition to allowing oral queries to be submitted in cases of ‘exceptional urgency’, the UKLA intends to allow sponsors to submit oral queries on a named basis regarding technical issues which arise during the provision of a sponsor service on a transaction and is intending to establish a Sponsor Service Enquiry Line (SSEL) for this purpose. The UKLA expects such requests to usually be complex and significant, so it is likely that in the majority of cases a written submission will be required before definitive individual guidance can be provided. The UKLA confirms that all other requests for individual guidance should be submitted in writing on a named basis and it intends to continue to provide guidance and support on the FSA handbook rules. The UKLA will also provide a written response where a request is complex or significant or where it is specifically requested within current turnaround times.

The Bulletin also sets out how the new UKLA Helpdesk will operate in practice, with three separate lines for general administrative enquiries, listing applications and an emergency helpline. Information on the new UKLA Helpdesk, as well as the final details of implementation, will be available on the UKLA website from 1 October 2012.

(FSA, Primary Market Bulletin - Issue No.3, 30.08.12)