ISLA looking for harmony
23 June 2010 ISLA Conference
Image: Shutterstock
The International Securities Lending Association (ISLA) is urging consistent and proportionate regulation for short selling, in response to a current European Commission (EC) consultation exercise. The EC is consulting on measures that enable authorities to restrict or ban short selling temporarily in emergency situations, increase transparency to regulators and the market about short selling positions and reduce settlement risks of uncovered or naked short selling.
ISLA believes short selling is a legitimate and important investment activity, which enhances price
discovery, counteracts supply/demand imbalances and also provides liquidity to the market. While in
agreement with the EC's desire to see consistent regulations across Europe, ISLA believes recent and
proposed regulatory interventions are inconsistent and disproportionate to the risks being addressed.
Speaking at ISLA's 19th annual conference in Berlin, Kevin McNulty, CEO of ISLA, said:
"It is counter productive for European securities regulators to unilaterally impose short selling
restrictions, given the desire for a harmonised approach to regulation. Our members want
proportionate and consistent regulation across Europe, given the material costs and increased
complexity of complying with different regimes and potential negative impact on efficiency of markets."
Whilst ISLA agrees that naked short selling - where an investor sells short without making adequate
provision to borrow relevant securities - could be restricted, it also believes the actual systemic risk of naked short selling in Europe is minimal. Exchanges already have mechanisms to penalize persistent non settlement of securities and evidence suggests that the vast majority of trades settle on or close to their intended settlement date.
In contrast to the proposed solution of the Committee of European Securities Regulators (CESR) for a
pan-European disclosure regime covering short selling in all listed shares, ISLA recommends private
disclosure of short positions to the regulator and subsequent publication of aggregate short positions on an anonymised basis.
In agreement with CESR, ISLA also believes that market making firms should be exempted from
disclosure requirements or other restrictions that might be applied to short sellers. However, ISLA also recommends that firms engaged in capital markets activities and who hedge underwriting via short
selling, should also be exempted.
ISLA believes short selling is a legitimate and important investment activity, which enhances price
discovery, counteracts supply/demand imbalances and also provides liquidity to the market. While in
agreement with the EC's desire to see consistent regulations across Europe, ISLA believes recent and
proposed regulatory interventions are inconsistent and disproportionate to the risks being addressed.
Speaking at ISLA's 19th annual conference in Berlin, Kevin McNulty, CEO of ISLA, said:
"It is counter productive for European securities regulators to unilaterally impose short selling
restrictions, given the desire for a harmonised approach to regulation. Our members want
proportionate and consistent regulation across Europe, given the material costs and increased
complexity of complying with different regimes and potential negative impact on efficiency of markets."
Whilst ISLA agrees that naked short selling - where an investor sells short without making adequate
provision to borrow relevant securities - could be restricted, it also believes the actual systemic risk of naked short selling in Europe is minimal. Exchanges already have mechanisms to penalize persistent non settlement of securities and evidence suggests that the vast majority of trades settle on or close to their intended settlement date.
In contrast to the proposed solution of the Committee of European Securities Regulators (CESR) for a
pan-European disclosure regime covering short selling in all listed shares, ISLA recommends private
disclosure of short positions to the regulator and subsequent publication of aggregate short positions on an anonymised basis.
In agreement with CESR, ISLA also believes that market making firms should be exempted from
disclosure requirements or other restrictions that might be applied to short sellers. However, ISLA also recommends that firms engaged in capital markets activities and who hedge underwriting via short
selling, should also be exempted.
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