Thu, Apr 17, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Oliver Wyman study: EU proposal for public disclosure of short positions would be ineffective

Tuesday, February 01, 2011

Andrew Baker
Opalesque Industry Update - An EU proposal for the public disclosure of the net short 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, according to an independent study.

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

The new study seeks to update the findings from a 2010 report by Oliver Wyman and to analyse the impact of a public disclosure requirement for short selling on trading activity in equity markets.

It comes as European lawmakers continue to consider changes to the European Commission’s draft short-selling regulations, which proposes public disclosure of individual managers’ net short positions above 0.5% of outstanding share capital. Under the existing timetable, a vote by the European Parliament’s Economic and Monetary Affairs Committee on possible amendments to the Commission’s original draft regulations could take place on 14 February 2011.

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.

“The hedge fund industry supports increasing market transparency through the publication of aggregated short positions. We also support reporting of positions to national regulators. But as the findings of this independent study highlight, there are serious unintended consequences of disclosing individual managers’ positions to the market – including a decrease in liquidity, lower returns for end investors including retail investors, and the likelihood that investments will move to other jurisdictions where returns are not constrained by inappropriate regulations,” said Andrew Baker, CEO, AIMA.

The Effects of Short Selling Public Disclosure of Individual Positions on Equity Markets, by Oliver Wyman, can be downloaded here: Source

(press release)

About AIMA

As the global hedge fund association, the Alternative Investment Management Association (AIMA) has over 1,200 corporate members (with over 5,000 individual contacts) worldwide, based in over 40 countries. Members include hedge fund managers, fund of hedge funds managers, prime brokers, legal and accounting firms, investors, fund administrators and independent fund directors. They all benefit from AIMA’s active influence in policy development, its leadership in industry initiatives, including education and sound practice manuals and its excellent reputation with regulators worldwide. AIMA is a dynamic organisation that reflects its members’ interests and provides them with a vibrant global network. AIMA is committed to developing industry skills and education standards and is a co-founder of the Chartered Alternative Investment Analyst designation (CAIA) – the industry’s first and only specialised educational standard for alternative investment specialists. For further information, please visit AIMA’s website, www.aima.org.

About Oliver Wyman

With more than 2,900 professionals in over 40 cities around the globe, Oliver Wyman is an international management consulting firm that combines deep industry knowledge with specialized expertise in strategy, operations, risk management, organizational transformation and leadership development. The firm helps clients optimize their businesses, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities. Oliver Wyman is part of Marsh & McLennan Companies [NYSE: MMC]. For more information, visit www.oliverwyman.com.

- FG

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Banner
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing
  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Opalesque Exclusive: European stock-picking fund up 19% YTD, bets on small caps’ high cash level[more]

    Benedicte Gravrand, Opalesque Geneva for New Managers: Here is a European long/short equity fund that has been beating the odds since its 2008 inception by employing its own investment model, frequent company visits

  2. CTAs could face new challenges in a rising rates environment[more]

    Bailey McCann, Opalesque New York: CTAs have taken a beating performance wise lately, and asset flows reports show that investors aren't sticking around to see how the movie ends. Now, a new white paper from Roy Niederhoffer and Coen Weddepohl notes that as interest rates start to tick back u

  3. Investing – Big hedge funds bought Puerto Rico's junk bonds, Fidelity explores new trading venue amid flash trade concerns, Crisis-era Greek bonds reward early buyers with big effective returns, Cargill unit discloses stake in Freddie preferred[more]

    Big hedge funds bought Puerto Rico's junk bonds From Reuters.com: Several large hedge funds doubled down on Puerto Rico in last month's giant bond sale despite the U.S. territory's financial struggles, the Wall Street Journal reported, citing confidential documents reviewed by the newspa

  4. Opalesque TV: First Trust Advisors launches liquid alternatives platform[more]

    Bailey McCann, Opalesque New York: First Trust Advisors is launching a new liquid alternatives platform aimed at building on the companies existing alternative ETFs offering by adding hedged mutual funds. Senior Portfolio Managers Rob Guttschow and John Gambla recently sat down in an

  5. Commodities – Popular value fund manager David Iben bets on Russia, gold,[more]

    From Reuters.com: With large bets on Russia and North American gold miners, one of the best performing stock pickers in the wake of the 2008 financial crisis is back with a new fund that reflects his deep aversion to following the crowd. In the Kopernik Global All-Cap Fund, David Iben is follo