The effects of short selling public disclosure of individual positions on equity markets
According to a new Oliver Wyman report, proposals for public disclosure of net short positions in European equity markets are beginning to lead to changes in asset allocation strategies, as institutional investors and fund managers are faced with liquidity, market efficiency and operational issues as a result of pending short-selling public disclosure regulations.
The study investigates how investors are responding to short-selling public disclosure proposals as liquidity and market efficiency are impacted in the European equity markets. The new report re-validates the significant concerns about the implications of these requirements that were raised in a previous Oliver Wyman report published in 2010.
Key observations highlighted in the study include:
- Institutional investors are concerned about liquidity drying up, increased trading costs, short squeezes in the market and loss of access to corporate management
- Public disclosure of individual short positions can lead to investors drawing inaccurate conclusions based on only seeing the short position (and not being aware of the accompanying long position)
- Disclosing individual positions renders the execution of many investment and hedging strategies extremely difficult, making jurisdictions which impose such strategies unattractive for investors
- Broad consensus was observed amongst participants that other public policy options including aggregated public disclosures, anonymous public disclosures or raising the thresholds to a level on par with long positions could achieve the same desired protections
The new study draws upon interview data from 35 global market participants to support previous statements and to understand how the markets have continued to evolve in response to the forthcoming regulatory initiatives on short-selling. Those interviewed included fund managers, institutional investors and regulators. Hedge funds in the study ranged in size from $1 billion to $25 billion in assets under management. The asset managers and pension funds participating in the study managed trillions of dollars in assets. The interviews were corroborated with market data and stock borrow/loan data from Data Explorers that examined specific measures of market liquidity, and academic research.
To download a copy of The effects of short selling public disclosure of individual positions on equity markets, please click here.
Bradley Ziff, Partner, NA Finance & Risk and Corporate & Institutional Banking Practices
Carey Hsu, Engagement Manager, NA Corporate & Institutional Banking Practice