The EU proposal to force individual fund managers to publicly disclose their net short positions risks distorting financial markets, according to a study by Oliver Wyman.
The report comes as European lawmakers consider changes to the European Commission’s draft short-selling regulations, which propose public disclosure of individual managers’ net short positions above 0.5 per cent of outstanding share capital.
The report, commissioned by the Alternative Investment Management Association and sponsored by Deutsche Bank, says such disclosure requirements result in lower market liquidity and an increased likelihood of short squeezes.
It adds that the overall benefits are negligible in comparison with increases in the cost of capital and the associated negative impact on the real economy.
Oliver Wyman says market transparency on short positions is desirable but can be achieved more effectively by the publication of either aggregated or anonymous short positions.
Aima chief executive Andrew Baker says: “The hedge fund industry supports increasing market transparency through the publication of aggregated short positions. We also supp- ort reporting of positions to national regulators.
“But as the findings of this independent study highlight, there are serious unintended consequences of disclosing individual managers’ posit- ions to the market – a decrease in liquidity, lower returns for end investors, including retail investors, and the likelihood that investments will move to other jurisdictions where returns are not constrained by inappropriate regulations.”
A vote by the European Parliament’s economic and monetary affairs committee on amendments to the commission’s draft regulations is due on February 14.