Explanatory note

These Regulations make provision about the short selling of shares and other financial instruments, and transactions which have a similar effect to a short sale. They replace Regulation (EU)236/2012 of the European Parliament and of the Council of 14 March 2012 on short selling and certain aspects of credit default swaps (which is to be revoked by section 1 of the Financial Services and Markets Act 2023 (c. 29) (“FSMA 2023”) once commenced). This instrument restates some provisions of Regulation (EU)236/2012 with modifications exercising powers in section 4 of the Financial Services and Markets Act 2023 (c. 29). These Regulations also make provision under powers in Part 5A of the Financial Services and Markets Act 2000 (c. 8) (“FSMA 2000”).

Regulation 4 specifies certain activities under section 71K of FSMA 2000 as “designated activities” for the purposes of that Act.

Regulations 5, 6, 8 and 9 enable the Financial Conduct Authority (“FCA”) to make “designated activity rules” (as defined in section 71L(3) of FSMA 2000) relating to the activities specified in regulation 4, and to provide in those rules for exemptions or waivers. Regulation 8 also requires the FCA to publish a list of shares in relation to which it considers the rules apply.

Regulation 7 requires the FCA, for each working day, to publish the aggregate net short position held in the issued share capital of a company, calculated as provided for in regulation 7(2) and (3).

Regulation 10 allows the FCA to give directions to a person who is failing, or is likely to fail, to comply with a requirement imposed by virtue of Part 2 of these Regulations.

Regulation 11 enables the Treasury to make regulations designating an overseas jurisdiction for the purpose of the application of an exemption provided for in FCA rules made by virtue of regulation 9(1)(a). Regulation 12 provides that each EEA state is to be treated as designated for this purpose.

Regulations 13 to 17 allow the FCA to impose measures in relation to the short sale of financial instruments, or transactions with a similar effect, in exceptional circumstances. Regulations 16(1) and 17(2) set out the conditions for the exercise of these powers. Regulations 18 to 20 require the FCA to publish a notice of the exercise of these powers, to review any measure imposed under these powers, and to publish a statement of its policy with respect to the exercise of these powers. Regulation 21 allows the FCA to give directions to a person who is failing, or is likely to fail, to comply with a requirement, prohibition or condition imposed by regulations 13 to 15.

Regulation 22 sets out requirements on central counterparties relating to procedures and fines where sellers using those counterparties fail to settle transactions in shares. Regulation 23 allows the FCA to give directions to a person who is failing, or is likely to fail, to comply with a requirement imposed by regulation 22.

Regulations 24 to 26 and Schedule 1 make provision about supervision and enforcement.

Regulations 27 to 29 make saving provision.

Regulation 30 and Schedule 2 make consequential amendments to other legislation. Other legislation will be revoked in connection with these Regulations in a commencement instrument made under the power in section 1 of FSMA 2023.

A full impact assessment has not been produced for this instrument as no, or no significant, impact on the private, voluntary or public sector is foreseen. A de minimis impact assessment is available from HM Treasury, 1 Horse Guards Road, London, SW1A 2HQ and is published with the Explanatory Memorandum alongside this instrument at www.legislation.gov.uk.