FCA Consults on Changes to the UK Short Selling Regime

Changes largely focus on streamlining administrative requirements to reduce the regulatory burden.

The FCA has published its long-awaited consultation on its rules and guidance under the restated UK short selling regime. Although originally billed as an area of potentially significant change under the Edinburgh Reforms, HM Treasury and the FCA have chosen not to fundamentally overhaul the regime, instead deciding to modify discrete areas of the rules. The FCA states that its proposals “intend to create a more efficient, effective, and coherent short selling regime”. Around two-thirds of attendees at an FCA event on the proposals indicated that they do not consider the changes will have a significant impact on their firm. No commencement date has been set for the new regime yet, although it is expected to take effect from June 2026.

Framework for the New Regime

It has taken almost three years to reach this stage, as the Short Selling Review was announced on 9 December 2022 as part of the Edinburgh Reforms. At its event, the FCA emphasised that it has been working very closely with HM Treasury to “get the reforms right”. The exercise of restating the UK Short Selling Regulation (inherited from the EU) requires a combination of legislative and rulebook changes. HM Treasury finalised the necessary legislation (The Short Selling Regulations 2025) earlier this year. While the Regulations largely replicate the current short selling regime, they do make some important changes. These include:

• Removing UK sovereign debt and associated credit default swaps from the scope of the UK short selling regime.
• Granting the FCA new rulemaking powers, allowing it to take responsibility for various elements of the regime going forward. Short selling in the UK will be regulated under the Designated Activities Regime (DAR), as it is not an activity that requires authorisation, but does attract regulatory obligations. The DAR allows the FCA to have certain rulemaking, supervisory, and enforcement powers over non-authorised persons.
• Replacing the public disclosure of net short positions (NSPs) equal to or above 0.5% of a company’s issued share capital, with an obligation for the FCA to combine, anonymise, and disclose NSPs as an aggregate figure in relation to each company, composed of all outstanding NSPs above the 0.2% reporting threshold.
• Creating a new obligation for the FCA to publish a list of shares subject to position reporting and covering requirements in the UK, rather than a list of exempt shares.

This FCA consultation proposes new rules and guidance on areas of the regime for which the FCA is now responsible. Many of the changes focus on reducing the administrative burden of the regime, for example by accelerating and simplifying the process for submitting market maker exemption notifications. The FCA’s rules and guidance will sit in a new Short Selling Sourcebook within the FCA Handbook.

Position Reporting

The FCA aims to reduce the administrative burden on short sellers by modifying the reporting regime in a number of ways, including:

• Extending the reporting deadline, so that NSPs need to be submitted by 23:59 (instead of 15:30) on the working day after the day on which the reporting obligation is triggered.
• Issuing guidance on the sources of information which can be used to identify the issued share capital of companies, and to clarify that a person should act reasonably having regard to publicly available information when calculating NSPs.
• Clarifying that the list of financial instruments for calculating long and short positions is an exhaustive list.
• Making some minor changes to the way in which legal entities within a group report NSPs, to ensure that the FCA’s aggregate net short position disclosures (ANSPs) are accurate. For example, constituent legal entities would need to report their NSPs on the same working day that the group reports its NSP falling below the base notification threshold, to avoid any gaps in ANSPs. The FCA also plans to modify its NSP forms by adding a new field to identify whether an NSP is reported on behalf of a group, if it is a renotification because its NSP has been subsumed within a group NSP, or if neither category is applicable.
• Introducing transitional arrangements for the reporting of positions that are established or change shortly before the main commencement day.
• Including waiver provisions to enable persons to apply for a waiver from the reporting requirements in exceptional circumstances. Such circumstances may include a serious systems outage preventing a person from meeting the reporting requirements.

Further, the FCA will update its systems so that persons reporting NSPs will be able to make bulk submissions covering multiple positions.

Disclosure

The Short Selling Regulations 2025 introduce a new model under which the FCA must publish a single ANSP in relation to each relevant company, rather than requiring the public identification and disclosure of persons who hold NSPs. The FCA will publish new guidance on how it will calculate, publish, update, and correct ANSPs. It is proposing to change the timing of publication, so that it will publish the ANSPs held on each working day from 12:00 onwards two working days after the working day to which the positions relate (currently it publishes NSPs from 15:30 on the next trading day). This change would accommodate the later reporting deadline and the time needed for the FCA to calculate ANSPs.

Covering

The FCA intends to broadly retain the regime, with a few modifications:

• Evidence for having met the covering requirements must be kept for five years (making this a requirement, not just guidance).
• For agreements relating to subscription rights, the seller not only needs to be entitled to receive the shares on or before the settlement of the short sale, they also need to ensure that settlement can be effected when due.
• The FCA will change what an “easy-to-borrow or purchase list” needs to contain to be considered an “easy-to-borrow or purchase confirmation”, by replacing the “maximum amount of shares affected by the possible sale” with “the amount of shares that is available”.

The FCA is also seeking views on whether expectations regarding the ability to ensure settlement for locate arrangements should be aligned to the other covering arrangements.

Reportable Shares

The Short Selling Regulations 2025 require the FCA to publish a list of reportable shares, rather than a list of exempt shares. As well as setting out its proposals for how it will publish and maintain this list, the FCA also proposes to change the methodology for deciding which shares to exempt, to expand the criteria it considers with a view to reducing the number of shares in scope. Specific proposals include:

• Amending the calculation for where a share is principally traded, by focusing on trading volume rather than turnover.
• Introducing a new criterion to consider whether a share is of significant importance to the UK market. This will include consideration of factors such as where the company is headquartered and regulated.
• Considering whether a share is subject to similar short selling rules in any third countries when a share is principally traded in the UK, but is not of significant importance to the UK market. The FCA hopes this will enable it to reduce the number of shares on the list.

From an administrative perspective, the FCA still plans to fully review and update the list every two years. However, it is proposing to move the review date from 1 January to 1 April. Once the regime is in place, the first full update will take place on 1 April 2028. The FCA will also review and update the list on the first working day of each month, to account for shares being admitted to or removed from UK trading venues, and on an ad hoc basis, in response to significant events or information.

Market Maker Exemption

The FCA’s proposed modifications largely relate to the process for notifying use of the exemption, with a view to making it easier and faster for firms to use. At its event on the consultation, the FCA indicated that it did consider making the market maker exemption available at an index level; however, it decided that this would have been administratively challenging.

The FCA is proposing to reduce the notification period from 30 calendar days to 15 calendar days. Further, market makers who already benefit from the exemption in relation to one or more financial instruments would be allowed to use the exemption in relation to a new financial instrument immediately upon notification, rather than requiring a 30 calendar day notification period (although the exemption will only take effect from the end of the day on which the notification is received, rather than immediately upon receipt, for six months after the main commencement date, until the FCA’s new systems are in place). However, the FCA notes that it may review the use of the exemption on a retrospective basis and highlights that firms will need to continue to keep appropriate records of their activities under the exemption so that they can demonstrate compliance with the conditions during any FCA review.

The FCA also intends to clarify that a firm may meet the requirement to be a member of a UK trading venue through their membership of an EEA trading venue that is deemed equivalent under the Short Selling Regulations 2025.

In terms of transitional arrangements, the regulator will allow any pre-existing exemptions to be used under the new regime from the main commencement day, until 1 June 2027. The FCA plans to update the systems for submitting market maker notifications, but these updates will not take effect until six months after the regime goes live. During this transitional period, notifications will need to be sent via email using new notification forms that will be made available on the FCA website.

All legacy exemption notifications will need to be submitted to the new system once live and before 1 June 2027, including those granted under the manual email process during the six months after the main commencement date.

The FCA encourages firms making new notifications shortly before the main commencement day to submit these at least 30 days in advance where possible, so that the exemption can be granted prior to the start of the new regime. However, if this is not possible, the FCA will allow notifications made by a firm that does not already benefit from the exemption to transition across to the new regime. The remainder of the 30 day notification period will continue to run after the main commencement date. For firms that already benefit from the exemption, any outstanding notifications for additional financial instruments made less than 30 days before the main commencement date will allow the market maker to benefit from the exemption from the end of the day on the main commencement date.

Emergency Powers

The FCA has produced a draft Statement of Policy that explains the circumstances in which it may exercise its emergency powers, which have been retained under the Short Selling Regulations 2025. This largely replicates the FCA’s existing approach, and the FCA stresses that it is maintaining a high bar for the use of these powers.

Enforcement Powers

The FCA confirms that its full suite of investigative and enforcement powers under the Financial Services and Markets Act 2000 will apply to the regime, either directly (in relation to a regulatory obligation under the DAR) or indirectly as applied by Schedule 1 of the Short Selling Regulations 2025 to certain obligations set out in the Regulations. The FCA will also have powers to impose directions on firms in appropriate cases. It indicates that it may use these powers when it would be appropriate to intervene in order to mitigate risks of market stability or integrity.

Next Steps

Responses are requested by 16 December 2025. The FCA is proposing to implement the changes to its systems in two phases. On the main commencement date (which will be two months after publication of the Policy Statement), the new Short Selling Sourcebook will take effect and the FCA will update its systems to facilitate the calculation and publication of ANSPs and the new reportable shares list. The FCA plans to make the reportable shares list machine-readable and publish this alongside its Policy Statement, so that firms have time to integrate the list into their systems. Six months after the main commencement date, it will update the systems used to send position reports and market maker exemption notifications. These timings are illustrated in the timeline below, based on the dates provided at the FCA event.