FCA’s Short Selling Regime: A Step Forward, But More Can Be Done

The FCA's long-awaited consultation (CP 25/29) on the UK short selling regime has been published with comments required by 16 December 2025. This will be of interest to all market participants short selling equities admitted to trading on UK trading venues and related financial instruments, regardless of whether they are FCA authorised firms.

1. How Did We Get Here?

By way of brief recap, the current UK Short Selling Regulation (UK SSR) originated from the EU Short Selling Regulation (EU SSR), which was assimilated into UK law following Brexit by virtue of the European Union (Withdrawal Act) 2018 and the Short Selling (Amendment) (EU Exit) Regulations 2018. This framework, together with relevant on-shored technical standards and non-legislative materials (e.g., ESMA's Q&As and Guidelines) forms the basis of the UK's existing short selling regime.

Post-Brexit, the UK government, under the Financial Services and Markets Act 2023, set out a process to repeal and replace assimilated law, which (among other things) has empowered HM Treasury and the FCA to establish a new legislative and regulatory framework for short selling. The UK short selling regime was also a focus of Jeremy Hunt's 2022 Edinburgh Reforms. This culminated in the Short Selling Regulations 2025 (SSR 2025), made and published in January 2025, which conditionally repeals the UK SSR. The SSR 2025 creates a new legislative framework for regulating short selling and enables the FCA to make its own short selling rules. While some provisions of the SSR 2025 are in force (e.g., those giving the FCA powers to make new rules), the remaining provisions will only come into force on the same date that the FCA's proposed rules come into force (i.e., the "main commencement date"). It's worth noting that elements of CP 25/29 are based on feedback provided to the Treasury as part of its 2022 Call for Evidence.

CP 25/29 proposes the creation of a new Short Selling Sourcebook in the FCA Handbook, which will set out the FCA's short selling rules and requirements. For the most part, this replicates the existing on-shored technical standards and non-legislative EU materials, but the FCA is also consulting on certain more substantive changes to the rules, which we've highlighted below.

2. TL;DR

Regarding the equities regime, the FCA has proposed positive changes to eliminate some of the least popular elements of the existing rules. There are some significant wins for the industry - specifically, the FCA will publish aggregated, anonymised net short positions, rather than naming individual position holders at or over the 0.5% threshold. This should allow investors to express their true sentiment more freely, without the chilling prospect of public disclosure (and associated issuer retaliation). Additionally, the FCA also plans to create and maintain a definitive list of in-scope shares. The extension of the net short position disclosure submission deadline from the existing (and arguably random) 15:30 (UK time) T+1 deadline to 23:59 (UK time) on T+1 will also be a welcome change.

However, there are some missed opportunities, where firms may wish to push the FCA harder as part of their feedback to effect even more meaningful change. For example, advocating for the FCA to provide a "golden source" for the denominator for each in-scope issuer (rather than firms individually having to determine this), and the removal of index derivatives and index-tracking ETFs from the numerator calculation.

On the sovereign debt side, although not part of the FCA's consultation, the coming into effect of the new FCA rules will trigger the end of the net short position disclosure regime for UK sovereign debt and the termination of the prohibition of uncovered short sales of sovereign debt and UK sovereign credit default swaps (CDS). This is already hard-wired into UK legislation, but will not occur until the new FCA rules are in force. 

These are draft proposals only, and until they come into force (likely after 1 April 2026), the current UK short selling regime continues to apply.

3. So what are the key changes being proposed?

The FCA's starting position is that firms are familiar with, and largely comfortable with many elements of the existing equities short selling regime. Therefore, CP 25/29 is primarily seeking to alleviate some of the disproportionate burdens and least popular elements of the regime. Some proposals also align with the new US regime coming into force in February 2026 under Reg SHO (e.g., anonymised aggregated reporting).

• Anonymised, Aggregated Disclosure of Net Short Positions ("NSPs"): This change was first announced as part of the Edinburgh Reforms package back in December 2022 and, after what has often felt like a frustratingly long wait, the FCA has now confirmed that it will publish aggregate net short positions (ANSPs) for each in-scope issuer, based on all NSPs reported to it at or above the 0.2% reporting threshold, but without naming individual position holders. This replaces the current requirement for public, named disclosures at the 0.5% threshold or above.

  This is a hugely positive step for the industry. Firms have long argued that it is the aggregate level of short selling that is important, not the identity of individual short sellers. This new approach should remove a key disincentive to short selling (as acknowledged by the EU when it introduced the regime in 2012) and allow investors to express their true sentiment about issuers more freely without fear of awkwardness or retaliation from relevant issuers. In fact, the FCA's new approach will likely improve transparency, as the market will now see the totality of all positions above 0.2%, rather than just those above 0.5%. We could see some interesting market movements when the regime goes live, as a truer picture of short sentiment potentially emerges!

  It's worth noting that firms will still need to submit NSPs privately to the FCA at the current UK thresholds (e.g., 0.2%, and each 0.1% increment above this). 

• Definitive List of In-Scope Shares:Finally (!) the FCA has said it will publish and maintain a "reportable shares list" (RSL), detailing the shares that are subject to the FCA's position reporting and cover requirements. This "golden source" of in-scope shares will mean that firms will not have to individually work out which shares are within the scope of the UK short selling regime (no more cross referencing FCA FIRDS against the FCA exempt shares list). Importantly, the RSL will be machine-readable, allowing for easier integration into firms' systems, and will be reviewed every two years, as well as updated each month to account for shares admitted to or removed from UK trading venues and on an ad hoc basis where necessary. The hope is that this will make it much easier for firms to comply with the requirements and should reduce the risk of technical breaches. While the FCA will create a definitive list of shares within scope, it will not provide a "golden source" for the relevant denominator, which firms will still have to work out for themselves (see more on this below).

  The FCA will publish a live, draft, copy of the RSL on its website two months prior to the 'main commencement day' (see more on timelines at the end of this article).

• Deadlines and Timelines:

  • Submission deadline: The FCA is proposing to extend the deadline for submitting short position disclosures to 23:59 (rather than 15:30) (UK time) on the working day following the day the reporting obligation is triggered (i.e., T+1). This additional flexibility is a win for our international clients, in particular.

  • Calculation: The FCA proposes clarifying (perhaps unnecessarily, as this already reflects usual market practice) that the net short position calculation itself can be caried out at any time before the position report is submitted (rather than at midnight), but that it should use the relevant information (e.g., issued share capital and long/short positions) as at midnight at the end of the relevant trading day.

• Online Notification System: The FCA is proposing a more efficient notification/reporting system, including bulk submission functionality, but firms will have the option to stick with the status quo. Presumably this is an uncontroversial, positive change (provided that the new system works!).

• Waivers: The FCA proposals include waiver provisions allowing waivers from reporting requirements to be granted in exceptional circumstances, such as systems outages. We think this will be helpful.

• Other Changes: There are proposals changing the approach to reporting for individual legal entities within a group where the group position reaches or falls below the base notification threshold. However, reflecting the current short selling regime, asset management positions will continue to fall outside the scope of group aggregation and will remain disclosable on an individual investment manager-by-investment manager basis.  Separately, Section 4 of CP 25/29 makes tweaks to the cover requirements for short sales, notably by amending the ESMA Q&A guidance to better suit the FCA's objectives. Importantly, the prohibition on uncovered short selling of shares will continue to apply.

• Market Maker Exemption: Currently, market makers short selling in the course of performing market making activities may benefit from an exemption from the reporting and cover requirements under Article 17 UK SSR. For a market maker to avail itself of this exemption, currently it must notify the FCA of its intention to use the exemption on an instrument-by-instrument basis, 30 calendar days before it intends to use the exemption for that instrument. The FCA is not changing its current position that the exemption only covers market making activities (i.e., not proprietary trading activities more generally), but the FCA will make it easier and faster for market makers to use the exemption by:

  a) reducing the notification period from 30 to 15 calendar days;

  b) enabling market makers with an existing exemption to notify the FCA in advance of using the exemption for a new financial instrument and allowing them to benefit from the exemption in relation to that new financial instrument immediately once the FCA has received the notification; and

  c) removing volume estimates from market maker exemption notifications.

  There will be transitional provisions allowing current market maker exemptions (i.e., 'legacy exemptions') to continue to apply when the new short selling rules come into force until 1 June 2027. Firms will need to submit new exemption notifications to the FCA by 1 June 2027.

  Related to this, the FCA is proposing a new exemption notification submission system that will take effect six months after the 'main commencement day'. During the interim period, there will be new forms available to firms, which must be submitted by email (the method currently required). There could potentially be quite a lot of work involved across firms, as all legacy exemptions will need to be submitted into the new online system once it is live (i.e., the FCA is not proposing to port this information over to their new system itself). This may be a point of advocacy for relevant firms.

• UK Sovereign Debt: As mentioned above, the impact of the FCA rules coming into force is that the termination of the disclosure regime for UK sovereign debt and the prohibition on uncovered UK sovereign debt and UK sovereign CDS trading (which are already hard-wired into law) will take effect. In the draft rules, the FCA has reserved the power to make additional requests to market participants for information about their positions in UK sovereign debt and associated UK sovereign CDS.

4. What Isn't Changing?

• Quite a lot... for example, and as mentioned above, the notification thresholds for reporting a NSP privately to the FCA are staying the same (e.g., 0.2%, with incremental notifications at each 0.1% above that). The FCA's approach to emergency powers and enforcement remains largely unchanged, with a high bar for intervention and a focus on maintaining market integrity.

• There are some clarifications rather than changes... for example, (i) there are tweaks to the FCA's rules to align with operational practices (e.g., referencing that correction notifications can be made, not just new/deletion notifications) and (ii) the FCA is moving guidance relating to record-keeping of cover arrangements for equity trades from the ESMA Q&As to the Short Selling Sourcebook, although there is one subtle proposed change in language whereby records will need to be kept "for at least 5 years", rather than "for 5 years" (under the current ESMA Q&As).

5. Missed Opportunities and Potential Points For Advocacy

Despite all the positives, there are some key areas where the FCA has, in our view, missed a trick:

• No "Golden Source" for the Denominator: The FCA has not proposed a single, definitive source for the issued share capital figure for each in-scope issuer (i.e., the denominator for net short calculations), nor has it set out a clear, definitive hierarchy of acceptable sources. The FCA's guidance is that firms should "act reasonably having regard to publicly available information" (e.g. DTR 5.6.1R, Companies House filings, commercial data providers), but this leaves room for interpretation and potential uncertainty. Without a "golden source" published by the FCA or, at the very least, a definitive waterfall of acceptable sources where more than one is available, firms will still need to make their own determinations, increasing the risk of inconsistency and by retaining a part of the regime that imposes a significant administrative burden on firms (given historic issues with denominator determination).

  This is something we think the industry should continue to advocate for, given that the FCA's proposals remain in draft.

• Index/ETF Positions Still in Scope: The FCA is proposing to continue to require firms to include positions held through index derivatives and index-tracking ETFs in their NSP calculations. For many investors, this is the fiddliest and most administratively burdensome aspect of the regime. It also adds very little value in terms of market transparency, given that investors do not typically use index or basket derivatives or index-tracking ETFs to take short positions in individual stocks, so including these positions does not reflect true market sentiment.  

  The FCA could and, in our view, should have excluded these instruments from the scope of the UK short selling regime, and it is something we would also encourage clients to consider advocating for while the opportunity exists.

• Final Points to Consider:

  Other aspects of the current regime that the FCA could have chosen to revisit include:

  • The exclusion of convertible bonds from the numerator calculation. The exclusion means that investors pursuing delta neutral convertible arbitrage strategies (i.e., long convertible bonds, short shares) often end up disclosing large short positions because their long positions in the convertibles are not included in the NSP calculation. Perhaps with the advent of aggregated, anonymised disclosure, this will become less of an issue?

  • The lack of aggregation within corporate groups of their asset management positions. There are differing views on this in the market, but many market participants with a global presence would prefer to calculate a single NSP across all the asset management entities in their group.

6. Timeline

View the proposed FCA timeline here.

For now, the key point to consider is whether your firm wishes to advocate for further changes ahead of the FCA's consultation closing on 16 December 2025.