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Matthias Knab, Opalesque for New Managers: Europe's rule of publicly naming short sellers is doing more harm than good to the region's capital markets, according to new research by Copenhagen Economics commissioned by the Managed Funds Association (MFA). The report, "The Role of Short Selling in EU Capital Markets: Effects, evidence and regulatory implications", published today, draws on ten years of disclosure and trading data from seven European markets and concludes that named public disclosure discourages informed short selling, encourages copycat positioning and adds to stock volatility.
The timing is deliberate. The UK replaced named disclosure with anonymised, aggregate data in July 2026, and the US also publishes only aggregate short-interest figures. That leaves the EU, together with Japan and South Korea, as one of the last developed markets that publishes the identity of individual short sellers. MFA is now urging Brussels to follow London's lead.
"Short selling helps investors by making markets more liquid and stock prices more accurate. These benefits are essential to building the deep, competitive capital markets the EU needs to attract investment, and finance growth," said Jillien Flores, MFA Chief Advocacy Officer. "This research shows why the EU should adopt anonymised, aggregate disclosure that preserves regulatory oversight while allowing short sellers to contribute more fully to the EU's economic competitiveness."
How the EU regime works
Under the EU Short Selling Regulation (SSR), in force since 2012, net short positions above 0.1% of issued share capital must be reported privately to the national regulator. Once a position reaches 0.5%, the regulator publishes both the size of the position and the name of the holder, with a further public disclosure required for every additional 0.1 percentage point. The report stresses that it does not question reporting to regulators - only what is made public.
The UK, which initially kept the EU rules after Brexit, took a different path. The FCA's new regime, effective 13 July 2026, retains private notification above 0.2% but publishes only aggregate net short positions at issuer level. The FCA's reasoning, as summarised in the report, was that named disclosure imposed disproportionate burdens on firms and exposed them to short squeezes and copycat trading.
Short sellers are informed - and that is the problem
The study's starting point is that short sellers, on average, know something. Using disclosed positions across Denmark, Finland, France, Germany, Italy, the Netherlands and the UK from 2015 to 2025, Copenhagen Economics finds that stocks with higher disclosed short interest underperform over the following months, with the effect building to around -0.7% after 180 trading days. The signal is concentrated in less-liquid stocks, where a more-shorted stock goes on to fall by around 1% over 90 trading days, while in the more-liquid half of the market the effect never becomes statistically significant.
Because a disclosed short is a genuine signal, the authors argue, it attracts followers - and this is where public naming starts to distort markets. The report identifies three channels:
1. Deterrence. Investors avoid crossing the 0.5% threshold. Citing Bundesbank and ESMA research, the report shows that positions just below the threshold are the least likely of all position sizes to increase, and tend to stay there longer. Managers have three reasons to stay below the radar: protecting their research from free-riders, avoiding being targeted in a short squeeze, and reputational risk, for example where they also do business with the company concerned.
2. Herding. Across the European data, when other investors raise their disclosed short interest in a stock by one percentage point, a given investor raises theirs by 0.07 percentage points in the following days. Denmark provides the cleanest test, because it is the only market that also publishes positions below the public threshold, with a delay of more than a month, so traders cannot react to them in real time. Danish data show that total short interest reacts around 2.4 times as strongly to a disclosed change in short interest as to a non-disclosed one of the same size, which the authors attribute to public observability rather than the underlying information.
3. Volatility. A new disclosure is associated with roughly 2.9% higher daily stock volatility relative to the average. The likely mechanism, according to the report, is herding: investors piling in behind a named position without their own analysis can push prices beyond fundamental value, and the subsequent correction adds volatility.
Notably, the findings extend Copenhagen Economics' 2021 study on the same topic, which covered 2015-2020, to a window that includes the COVID-19 shock, the 2021 meme-stock squeezes and the 2022 energy and rate shock. The authors say the herding and volatility effects held throughout.
"The evidence is consistent across markets. Short selling helps prices reflect information and improves market liquidity," said Ron Alquist, MFA Head of Research. "Those benefits extend to every investor and also reduce companies' financing costs. This research shows how the EU's public disclosure rules can undermine those benefits by changing how investors trade."
An EUR11bn liquidity dividend
The report also puts a number on what short selling is worth to European issuers. Drawing on ESMA evidence that short-selling bans widened bid-ask spreads by around 7.7% on average, against an estimated average European spread of 23.4 basis points, and applying established academic estimates linking trading costs to required returns, Copenhagen Economics calculates that short selling lowers the annual cost of equity capital for European listed firms by around 8 basis points. Scaled to the STOXX Europe market capitalisation of EUR13.9 trillion, that amounts to roughly EUR11bn a year.
The authors are open about the limits of the figure. It rests on spread data from ban periods, which only occurred during crises, and assumes that allowing short selling narrows spreads by the same amount that banning it widens them. It also covers only the liquidity channel: a second channel, through lower firm-specific risk premia, is described as real but too uncertain to quantify, with estimates ranging from zero to several times the liquidity effect.
Wirecard as the case study
The report revisits Wirecard as the clearest European example of what is at stake. Short sellers had flagged problems at the payments group years before its 2020 collapse, yet in February 2019 BaFin imposed a temporary ban on new short positions in the stock while short sellers and journalists faced criminal investigation. According to the report, interviews with hedge funds suggest many managers short Wirecard were reluctant to cross the 0.5% public disclosure threshold. BaFin president Mark Branson acknowledged to the Financial Times in 2025 that, on Wirecard, the critics had got it right and the regulator had got it wrong.
Brussels has so far held the line
The EU has not yet been persuaded. In its 2022 review of the SSR, ESMA rejected proposals to raise the threshold or replace named disclosure with aggregated data, arguing that the 0.5% threshold offered sufficient transparency without compromising market efficiency. ESMA did, however, recommend publishing aggregated, anonymised net short positions at issuer level alongside the existing regime, and creating a centralised EU publication system. The report notes that the SSR disclosure framework has remained essentially unchanged since 2012, while most other EU financial regulation, from MiFID II to AIFMD, has been reviewed and amended over the same period.
Readers should also note that the research was commissioned by MFA, which has long campaigned for aggregated disclosure in both the UK and the EU. Copenhagen Economics states that, in line with industry practice, the client chose the research question while the findings and conclusions are the firm's own.
With the EU's Savings and Investments Union agenda focused on deepening European capital markets, MFA's argument is that removing named disclosure would be a low-cost reform that keeps full transparency for supervisors while lowering the barriers for managers who provide liquidity and price discovery.
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