Questions raised over FCA’s new short-selling rules
Apparent errors in the Financial Conduct Authority (FCA)’s first batch of new short-selling data have raised questions over the accuracy of information used by traders and regulators to track bets against UK-listed companies.
The Financial Times first reported that the regulator’s new disclosures contained a series of apparent errors, including positions that were changed or removed without explanation, duplicate entries and some years-old bets that are unlikely to still be active.
Analysis by data provider Breakout Point, reviewed and confirmed by the FT, found short positions against FTSE 250 software company Softcat appeared in Monday’s report before disappearing from Tuesday’s update without being listed as closed.
The updated report also showed different dates and position sizes for four companies, including student accommodation provider Unite Group, without recording that the figures had changed.
A person familiar with the matter told the FT one amendment was made after a short position had been duplicated.
The issues come after the FCA overhauled how it publishes short-selling data. Instead of naming individual hedge funds betting against companies, the watchdog now reports the total level of short interest in each stock once it reaches 0.2 per cent of a company’s shares.
Confidence in market data
Chris Brennan, a partner at law firm Dentons, said market participants relied on the disclosures to monitor trading activity and identify potential misconduct.
“The information that flows into the FCA is essential for market oversight and to identify misconduct”, he said. “Market users have a reasonable expectation that what they see published is correct.”
Breakout Point founder Ivan Cosovic added: “Early-days issues are perhaps forgivable and things are already improving, but invisible corrections in an official market record should not become a habit.”
The FT also reported that some short positions disclosed under the previous reporting regime appeared to have been omitted from the new data, while others dating back more than five years remained listed despite appearing unlikely to still be active.
One example was a short position in miner Critical Mineral Resources first disclosed in 2021.
The company’s shares have fallen 87 per cent since then, a move that would typically allow a short seller to close its position and lock in a profit.
The FCA told the FT it had reviewed the examples highlighted by Breakout Point and concluded there was “no need for any revisions” to the published data.
It has been reported that the disclosures rely on information submitted by investors and that the FCA contacts firms where necessary to check whether older positions remain valid.
The scrutiny follows another busy week for the watchdog after it called for wider powers to regulate AI, warning the UK’s financial rulebook must keep pace with rapid changes in tech.
City PM has approached the FCA for comment.