Published On: Fri, Feb 10th, 2012

HK SFC Concludes Short Position Reporting Rules

The Securities and Futures Commission (SFC) published February 10 the conclusions to the Further Consultation on the Securities and Futures (Short Position Reporting) Rules (Rules) ended in November 2011 (Note 1). The proposed Rules attached to the conclusions will be submitted to the Legislative Council for consideration. Subject to the legislative process, the Rules will come into effect on 18 June 2012.

In view of additional market feedback, the proposed Rules have provided for reporting of short positions on a net basis. They also have been modified to provide greater clarity in certain areas, including reporting obligations in relation to corporate “umbrella” funds and jointly owned short positions. Other than the aforesaid refined policy proposals, the proposed Rules are fundamentally the same as those consulted previously (Note 2).

“The Rules published today have been shaped by extensive consultation with relevant stakeholders to lay down a clear regulatory framework for market participants to report short positions to the SFC,” said Mr Ashley Alder, the SFC’s Chief Executive Officer. “With this regime in place, the SFC will be able to perform its role more effectively in monitoring the market, including detection of significant build-up of short positions. We believe our publication of data on aggregated short positions will enhance transparency to the market,” Mr Alder added.

On behalf of the SFC, Mr Alder further urged market participants to start preparing for the new reporting requirement.

1. On 18 October 2011, the SFC published the Consultation Conclusions and Further Consultation on the Securities and Futures (Short Position Reporting) Rules. The further consultation ended on 4 November 2011.
Under the proposed Rules in the Further Consultation, net short positions, as at the close of last trading day of each week, that amount to or exceed the threshold of 0.02% of the issued share capital of a listed company, or a market value of $30 million, whichever is lower, are to be reported to the SFC. Reports must be submitted electronically within the following two business days. In general, the duty to report is imposed on the party who has the reportable short position. Only short positions in the constituent stocks of the Hang Seng Index, the Hang Seng China Enterprises Index and other financial stocks specified by the SFC will be subject to reporting. The reporting requirement may be changed to daily reporting in contingency situations. The SFC will publish aggregated short positions of each stock, on an anonymous basis, within three business days after the receipt of the reports.

2. The Rules proposed in the Consultation on Securities and Futures (Short Position Reporting) Rules published in May 2011 were the same as those proposed in the Further Consultation except that the former required reporting of gross short positions.

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