Short Selling Regulation: consultation – sovereign debt and credit default swaps

Following the launch of a consultation on proposed revisions to current requirements under the Retained Short Selling Regulation (UK SSR) in view of a new, upcoming UK own short selling regime (EventID 22152), the HM Treasury has now published a response paper on this matter.
#### Background
To recall, the UK government is seeking to replace the entire short selling regime that was retained from the EU following UK’s exit from the European Union. In this context, the HM Treasury also seeks to improve the functioning of the regime, thereby eliminating unnecessary burdens of firms while maintaining efficient market oversight.
As part of this process, the Treasury sought feedback on a proposal to exclude entirely from any upcoming short selling-related requirements sovereign debt and credit default swaps (CDS) relating to sovereign debt instruments, leading to the elimination of position monitoring and reporting obligations in relation to such instruments. The Treasury also suggested to enable the Financial Conduct Authority (FCA) to implement emergency measures, if the market situation it so requires, by granting corresponding powers to the FCA.
#### Consultation response and way forward
In its response paper now, the Treasury notes that ALL respondents agreed with the removal of sovereign debts and related CDS from the short selling regime, as the corresponding restrictions „limited effective hedging“. One respondent disagreed with the introduction of powers for the FCA to implement emergency measures, if so needed, and others sought clarity on such powers.
As a consequence, the Treasury will go ahead as proposed and will include specific provisions in the new short selling regulation to direct the FCA to develop clear guidelines for the use of such powers and consult on such with stakeholders.
—
A corresponding draft instrument has been concurrently published by the HM Treasury and will be treated in a separate Event.