FCA consults on changes to the UK short selling regime

Background

The FCA has published a consultation (CP25/29) proposing a new Short Selling Sourcebook within the FCA Handbook to replace firm‑facing elements of the assimilated Short Selling Regulation. The consultation follows HM Treasury’s 2025 Short Selling Regulations (SSR 2025), which set the legislative framework for the UK short selling regime under the “Designated Activities Regime”, replacing the Short Selling Regulation (which was EU law “onshored” after Brexit) with regulatory rules.

The policy direction, informed by HM Treasury’s 2022 Call for Evidence and subsequent responses (see our note on the response here), is to retain the core architecture of the existing regime but reduce disproportionate burdens that may inhibit short selling’s contribution to price formation, liquidity and risk management. The FCA therefore proposes targeted adjustments to the rules around position reporting, covering, market maker exemptions, and the scope of instruments subject to the regime, together with an operational shift to machine‑readable, more automated processes.

Key legislative context includes the removal of UK sovereign debt and associated CDS from routine regime scope (albeit with emergency powers retained), the replacement of named public disclosures with FCA‑published aggregate net short positions (ANSPs), and a move from an “exempt shares” list to a “reportable shares list” (RSL) defining shares to which the rules apply.

Summary of key proposals

Position reporting

• Thresholds and timing: NSPs are to remain notifiable at or above 0.2% of issued share capital and each 0.1% increment thereafter, but reporting deadlines are proposed to move to 23:59 on T+1 (from 15:30), with positions calculated as held at midnight on the relevant working day.
• Data and methodology: The FCA proposed new guidance on identifying issued share capital (e.g., Companies House and DTR 5.6.1R) and an exhaustive list of instruments.
• Groups and forms: The FCA proposed to refine group reporting to avoid gaps/double‑counting, including a new “group notification status” field. The FCA also proposed a codified “correction” notification.
• Funds/ETFs: The FCA aims to incorporate but modify earlier ESMA guidance, to clarify look‑through for ETFs/UCITS to avoid double counting.
• Operations: The possibility of waivers are proposed for exceptional circumstances, and the FCA intends to implement a bulk submission capability.

Covering

• Records and evidence: The FCA proposed moving guidance on five‑year recordkeeping for borrow agreements, enforceable claims and locate confirmations into its rules.
• Clarifications: Various clarifications are proposed, including that subscription‑rights arrangements must ensure settlement can be effected when due and that “easy‑to‑borrow/purchase” confirmations must reflect actual available amounts. The FCA seeks views on aligning locate expectations more closely with borrowing to reduce settlement risk.

Reportable shares list (RSL)

• From “exempt” to “reportable.”: A key change in the move from the Short Selling Regulation to the SSR 2025 is the move from the FCA publishing a list of exempt shares, to a list of reportable shares. The FCA proposals cater for an RSL which will identify the shares to which reporting and covering apply.
• Scope methodology: The FCA proposed that the principal country is determined by aggregate trading volume per country over a two‑year period, plus a second limb assessing “significant importance” to the UK market (e.g., HQ/incorporation, primary listing, index inclusion, UK regulatory status, UK venue volumes, importance to the UK economy). Where the UK is principal but the share lacks significant UK importance, the FCA may exclude it if similar third‑country rules would make UK requirements duplicative.
• Maintenance: The FCA proposes comprehensive updates every two years on 1 April, with monthly and ad hoc updates; publication in machine‑readable format and a live draft RSL two months before commencement.

Market maker exemption

• Faster access: To streamline the market maker exemption, the FCA proposes that new market makers notify 15 calendar days before first use (down from 30). Existing market makers may notify new instruments with the exemption taking effect on receipt (subject to transitional mechanics before new systems go live).
• Simpler notifications: The FCA has also proposed simplifying market maker notifications, including removing certain volume estimates and confirming that membership of one UK trading venue (or equivalent EEA venue retained as equivalent) is sufficient.
• Supervision and systems: The FCA proposes clearer withdrawal/prohibition processes and a new electronic system to submit, view and manage exemptions six months after commencement. Legacy exemptions continue under transitional provisions until 1 June 2027 (renotification required before expiry).

Aggregate net short position (ANSP) disclosure

• Model: In line with legislative changes, public named disclosures at ≥0.5% are proposed to be replaced with FCA‑published ANSPs that sum all notified NSPs ≥0.2% (or a lower temporary threshold set under emergency powers) per issuer.
• Timing and quality: It is proposed that current ANSPs are published at/after 12:00 on T+2, alongside historical ANSPs, in machine‑readable format. Late or questionable notifications may be excluded initially, with corrections reflected once verified. Transitional provisions aim to preserve historical named disclosures and enable continuity.

Emergency powers and enforcement

• High bar retained: The FCA retains powers to lower thresholds, request additional information (including on UK sovereign debt and CDS) and to prohibit or condition short selling in exceptional circumstances. But it is proposed that measures are time‑bound, reviewed regularly, and communicated via standardised notices.

Implementation

• Two phases: The FCA proposes implementing the changes in two phases. Phase 1 at main commencement day for ANSP calculation/disclosure, RSL and the Sourcebook. Phase 2 six months later for new submission systems for position reports and market maker notifications.
• Transitional points: The FCA intends to issue their policy statement two months pre‑commencement and a live draft RSL, but legacy market maker exemptions continue to 1 June 2027 and ANSP continuity uses positions reported under the existing regime up to commencement.

Implications and next steps

If implemented as proposed, the reforms would largely preserve the current UK short selling framework while reflecting the updates of the SSR 2025 and introducing targeted operational changes intended to reduce burdens and improve transparency.

The main areas of practical impact for firms include:

• updating reporting processes to reflect the new timing and data expectations;
• incorporating updates (including guidance) on methodologies and instrument scope into systems;
• reflecting a revised scope perimeter driven by the reportable shares list;
• potentially taking advantage of streamlined market maker exemptions; and
• understanding the implications of a shift from named disclosures to FCA‑published ANSPs with T+2 publication.

These proposals would be implemented in phases (with core rules and disclosures at commencement and systems changes six months later), and include transitional arrangements for legacy market maker exemptions and the first RSL.

The consultation closes on 16 December 2025, with the FCA intending to publish its policy statement 2 months before Phase 1 of implementation begins. So firms will have a short period to get to grips with the final rules, and hence should understand the consultation proposals in preparation.