Fri, Feb 12, 2016
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

EU regulation fear causes hedge funds to shun short selling

Wednesday, June 15, 2011
Opalesque Industry Update – The looming European Union regulation that requires funds to disclose their short positions are causing hedge funds to shun short selling which could compel pension funds to again retract from securities lending, International Securities Lending Association (ISLA) Chief Executive Officer Kevin McNulty told reporters during a press conference on Tuesday.

A report quoted McNulty as saying: "Hedge funds like to have a level of certainty on their ability to execute and live with a trade for some time. Short-selling is good for markets while artificially stopping short-selling is a bad thing.”

ISLA represents banks, pension funds, insurance companies and agents that either lend out securities or facilitate the activity. Its biggest borrowers are hedge funds.

Because of the looming European regulation, borrowings from short sellers fell to $1.8tln from $4tln before the global recession. Hedge funds are fearful that the new rule willl require them to publicly disclose their short positions but the biggest fear within the industry, is that the EU will permanently ban short selling.

According to a report by the Wall Street Journal, the European Union is finalizing details on a new rule that would require short-sellers, particularly hedge funds, to disclose their positions to both the market overall and to regulators. The same proposal also empowers authorities to ban the practice under certain conditions.

Several European countries, like the U.K., have already set their respective rules around short-selling. In the U.K., short-sellers are required to disclose their position in some financial stocks and in companies involved in rights issues once their position reaches a minimum of 0.25% of a company's share capital.

McNulty said during the press briefing: "The supply side of the business is pretty healthy. It's very much the demand that is not there right now, relative to where it was two to three years ago. Hedge funds like to have a level of certainty on their ability to execute and live with a trade for some time."

"We think if you require investors to name themselves, that can have some very negative effects in the market.

Also to be affected by the new rules are pension funds which will be tagged as short sellers under the proposed new European Union rule.

Pension funds have again expanded their lending programs to near the pre-crisis level, after most of them held back at the height of the global financial meltdown.

But McNulty warned that pension funds could retract their lending programs if they will be classified as short sellers because they lend out securities that they also sell. The new rule will expose lenders to stringent rules.

"We want to make sure investors do not end up with a situation where, if you're a pension fund that has loaned and then sold shares, you are not held to have sold [them] short. If there is a risk to pensions in being seen as short selling, they may not lend anymore,” McNulty added.
Precy Dumlao


See last week's related article:
Opalesque Exclusive: European regulatory update for hedge funds Source

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
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. Credit Suisse cherry picks hedge fund ideas[more]

    From FT.com: Credit Suisse Asset Management plans to cherry pick profitable concepts from hedge funds with the launch in Europe of a “best ideas” strategy. The investment arm of the Swiss bank said the strategy will separate it from other funds blighted by “overcrowding problems”. It comes at a time

  2. Investing - Hedge funds bet on risks in U.S. blue-chip debt, Hedge funds bets against bank credit risk paying off, Tiger Global still likes Internet names, gets pointers from Jeter[more]

    Hedge funds bet on risks in U.S. blue-chip debt From WSJ.com: Hedge funds are betting the next bond sector to crack will be the $4.5 trillion market for the safest U.S. corporate debt. New York’s Perry Capital has placed a $1 billion wager against investment-grade bonds issued by 10 comp

  3. Short Selling - Hedge fund manager Kyle Bass is shorting real estate—again, Top US hedge fund has €80m short position in Paddy Power Betfair[more]

    Hedge fund manager Kyle Bass is shorting real estate—again From Fortune.com: He also predicted the mortgage crisis in 2008. Hedge fund manager Kyle Bass, who runs Dallas-based Hayman Capital, tanked the stock of a little-known real estate financier Friday by revealing that he is shorting

  4. Investing - Real estate secondaries sole 'bright spot' in 2015, As hedge funds stumble, one firm prepares to buy illiquid stakes[more]

    Real estate secondaries sole 'bright spot' in 2015 From IPE.com: The secondary market for property was the sole “bright spot” over the course of 2015, as hedge fund secondaries saw deals fall by two-thirds, according to a wide-ranging survey of the market. Setter Capital said 2015 saw th

  5. Asia - Hedge fund manager Kyle Bass estimates China's foreign reserves below critical level[more]

    From Nasdaq.com: Investor Kyle Bass stepped up his attack on China's currency, arguing in an investor letter distributed Wednesday that the second-largest economy's foreign reserves are "already below a critical level." The comments mark the latest effort by hedge funds and other investors to raise