Tue, Jul 7, 2015
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. Opalesque Exclusive: New systematic strategy managed alongside research firm outperforms S&P500[more]

    Benedicte Gravrand, Opalesque Geneva for New Managers: An emerging CTA manager explains how he runs his strategy, which is based on an index produced by a research firm. Peter Turk is head of

  2. Opalesque Exclusive: New systematic strategy embraces machine learning[more]

    Benedicte Gravrand, Opalesque Geneva for New Managers: The founder of a New York-based systematic trading firm, which offers a hybrid between alpha strategies and alternative feta at lower fees, describes his approa

  3. Larry Robbins' hedge fund Glenview buys 1m Tenet Healthcare shares[more]

    Komfie Manalo, Opalesque Asia: Glenview Capital Management said it bought an additional 979,482 shares at Tenet Healthcare Corp valued at $53.80 million, raising its stakes in the healthcare services company to 15.16%, reported

  4. Legal - Grayson’s hedge funds under scrutiny for possible ethics violations, Court rejects hedge fund’s motion to block merger of Samsung affiliates[more]

    Grayson’s hedge funds under scrutiny for possible ethics violations From Freebeacon.com: Rep. Alan Grayson is finding himself in hot water over managing hedge funds that bear his name, actions that are in possible violation of House ethics rules. Sitting members of Congress are prohibite

  5. Hedge funds decline in June as stocks tumble on Greek woes[more]

    From Bloomberg.com: Hedge funds posted losses across strategies last month as uncertainty over whether Greece will remain in the euro sent global stock markets tumbling. Winton Capital Management declined about 3.1 percent in June in its $12.1 billion Winton Futures Fund, leaving it down 1.9 percent

 

banner