HONG KONG: Entry into Force of Hong Kong Short Selling Disclosure Regime- First Report Due 26 June

Monday June 18 2012

With effect from today, market participants are required to report short positions to the Securities and Futures Commission (SFC) under the Securities and Futures (Short Position Reporting) Rules.

This means that, those who have reportable short positions as at Friday, 22 June must report to the SFC by the following Tuesday, 26 June.

A number of measures are already in place to regulate appropriately Hong Kong short selling activities. Short position reporting will now enable the Exchange to monitor more closely Hong Kong short selling activities. It will give more visibility of Hong Kong short selling activities overall, helping to detect unusual or abnormal trading pattern and thereby allow a better determination of how to respond as the securities market regulator.

Hong Kong’s existing short selling regulations have the following main features:

• “Naked” short selling is prohibited, which means short sellers need to arrange to borrow stocks before they execute short sales.
• To make a short sale easily identifiable, exchange participants are required to put a marker on each short selling order when they submit it to The Stock Exchange of Hong Kong Ltd (SEHK) for execution.
• Short selling is only allowed for more liquid stocks determined by SEHK.
• The “uptick rule”, where short sales cannot take place at less than the best ask price, imposed by SEHK helps prevent short sales having an abnormal effect on market prices.

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