UK Short Selling Regulation 2025: A New Era

The regulatory landscape of short selling in the UK has been on a dynamic journey. Initially, the UK’s own short selling regime set the stage. Then, in 2012, the introduction of the Short Selling Regulation (EU) No 236/2012 (SSR) harmonised the UK’s approach with that of other EU member states. This shift aimed to address concerns surrounding short selling in financial institutions, sovereign debt, and credit default swaps.

Fast forward to 9th December 2022, as part of the Edinburgh Reforms, the government launched a Call for Evidence on the Short Selling Regulation. The goal: to create a UK-specific regulatory regime for short selling. Following this, the government’s response was published on 11th July 2023, outlining key changes to short selling disclosure requirements. Simultaneously, a consultation was initiated regarding the regulation of sovereign debt and credit default swaps within the short selling framework. November 2023 saw the government release its response to this consultation, along with the first draft of the Short Selling Regulations 2023.

The regulatory journey reached a significant milestone in November 2024, when an updated draft of the Short Selling Regulations 2025 was presented to Parliament. This marked the beginning of a new regulatory chapter. The draft proposed a comprehensive framework and empowered the Financial Conduct Authority (FCA) with additional rulemaking powers. By January 2025, these new regulations were officially approved by the UK Parliament, reflecting the government’s responses to ongoing consultations and reviews, including those on sovereign debt and credit default swaps.

• Narrowing Reporting Instruments: Under the SSR rule, the FCA published a list of shares exempt from short selling regulations, specifically those admitted to trading on UK venues but primarily traded outside the UK. The new regulations shift this by having the FCA publish a list of shares that are in scope of the short selling regulations. This broadens the scope of regulated shares traded on UK venues and related instruments, while allowing the FCA to determine exemptions as needed.

 

• Public Net Short Positions Disclosure: The FCA now publishes anonymised aggregated net short positions based on all individual position notifications it receives. This is a change from the previous rule, which required the publication of individual net short positions above 0.5% of issued share capital.

 

• Special Monitoring for Sovereign Debt and Sovereign Credit Default Swaps (SCDS): The new regulation removes restrictions on uncovered short selling of sovereign debt and SCDS, as well as the requirement to notify such positions. However, the FCA retains its emergency intervention powers for sovereign debt and SCDS to ensure market stability in exceptional circumstances.

 

• Market Maker Exemptions: Market maker exemptions remain in place under the new regulations, but the authority to grant these exemptions has shifted from the Treasury to the FCA. This change provides the FCA with greater flexibility in defining and applying exemptions to short selling requirements. The Treasury retains the ability to designate equivalent non-UK jurisdictions for the market maker exemption, provided these align with the UK’s financial system and economic priorities. The new framework also clarifies the qualification criteria for market makers based on their operations in the UK or overseas trading venues, or through prior recognition in European Economic Area (EEA) states.

 

• Prohibition or Restrictions: The FCA continues to hold powers to intervene in exceptional circumstances, including requesting information and imposing conditions on short sales and related transactions.