EUROPE: AIMA-commissioned report on EU short selling proposals published

Tuesday February 8 2011

The Alternative Investment Management Association has published an independent report on EU short selling proposals.

According to the study, the EU proposal for the public disclosure of the net EU short selling positions of individual managers risks distorting financial markets and is not effective in meeting the needs of companies wishing to raise capital, investors seeking efficient risk management or regulators addressing financial stability.

The report by Oliver Wyman, the international management consulting firm, was commissioned by the Alternative Investment Management Association, the global hedge fund association, and sponsored by Deutsche Bank.

The Oliver Wyman study concludes that a regulatory regime based on the disclosure of individual managers` net short positions above a threshold of 0.5% of outstanding share capital is not effective in meeting the needs of the public, regulators or industry participants. It finds evidence that such disclosure requirements result in, among other things, lower market liquidity, and an increased likelihood of short squeezes. Overall, the benefits of these disclosure requirements seem negligible in comparison with the increases in the cost of capital and the associated negative impact on the real economy.

The study`s authors say market transparency on short positions is desirable and can be achieved more effectively than the current proposals by the publication of either aggregated or anonymous short positions.The study recommends that European policymakers adopt a regulatory framework in line with other major financial jurisdictions, none of which rely on public disclosure by individual managers. Private disclosure to regulators and public disclosure of, for example, short interest, has proven to be a balanced approach, says the study.

Click on the above link for more details.