UK short-selling disclosure rules face data quality questions

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UK short-selling disclosure issues

Highlights

Breakout Point analysis and FT confirmation reveal several errors and inconsistencies in the FCA’s initial short-selling disclosures following new reporting rules.
Short positions in companies such as Softcat and Unite fluctuated between daily reports without proper documentation or explanation, while some historic positions were omitted or duplicated.
The FCA maintains no data revision is currently necessary, despite user concerns over historic inaccuracies and a reduced disclosure threshold from 0.5 per cent to 0.2 per cent aggregate short interest.

Errors emerge in first FCA disclosures

As reported by the Financial Times, analysis by data provider Breakout Point finds several apparent errors in the Financial Conduct Authority’s newly released short-selling data, including entries that were later removed or changed without any recorded amendment. The FT says it reviewed and confirmed the findings, which concern the first disclosures published after the new rules took effect.

The FCA now publishes total short positions in a company on an aggregate basis rather than identifying hedge funds and other investors with significant bearish bets. But the new reports include inconsistencies, with short positions against FTSE 250 IT infrastructure company Softcat appearing in Monday’s report and then disappearing from Tuesday’s update without being listed in the section for historic positions that have been closed.

Tuesday’s report also lists different dates and position sizes for short bets in four companies, including student accommodation provider Unite, without noting that the figures differ from those published a day earlier. One adjustment is made because a short seller’s position is duplicated in the data, according to a person familiar with the matter.

Other issues appear in the regulator’s Monday and Tuesday reports, including one document carrying the wrong date. The disclosures also seem to omit some positions that are shown as active in the final report under the previous regime, including shorts held by Saba Capital and Lombard Odier Asset Management, although a person familiar with the matter says those positions are treated as historic and are not carried over into the latest reports.

Market oversight concerns under new regime

The data also appears to include years-old short positions that are unlikely to remain active. One example is a short in miner Critical Mineral Resources first disclosed in April 2021, which seems to be included on an anonymised basis in the FCA’s new report even though the company’s share price has fallen 87 per cent since the bet is first made public, a move that would normally allow short sellers to close out for a profit.

Chris Brennan, partner at law firm Dentons, says the information flowing into the FCA is essential for market oversight and for identifying misconduct, and that market users reasonably expect published disclosures to be correct. Ivan Cosovic, founder of Breakout Point, says early issues may be forgivable but invisible corrections in an official market record should not become routine.

The FCA says it has considered the examples of potential errors raised by Breakout Point and concludes there is no need for revisions to the data at this point. The regulator adds that it monitors reported positions, engages with position holders where necessary to verify information and maintain accuracy, and is also monitoring how the regime operates to determine whether changes are needed.

A person close to the FCA says the reports depend on the timeliness and accuracy of information provided by investors and that the regulator contacts firms to determine whether older reported positions remain valid. Under the new rules, the FCA makes public disclosure when aggregate short interest exceeds 0.2 per cent of a company’s share capital, compared with the previous threshold of 0.5 per cent for publishing individual short positions.

In our earlier article on Andy Burnham’s leadership transition and economic agenda, we outlined how his rapid rise to Downing Street left investors and businesses looking for clearer signals on growth policy and a pro-market framework. We also noted that tight public finances and proposals for greater public control in key sectors could heighten uncertainty, making market confidence and credibility with investors a central early test for the new government.

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