New UK Short Selling Regime – Analysis of Final Rules

Short selling is currently regulated under the UK Short Selling Regulation as assimilated European Union law (Current UK SSR). The Current UK SSR imposes net short position reporting and covering requirements in respect of in-scope shares and UK sovereign debt. It also requires public disclosure of significant net short positions in in-scope shares and prohibits uncovered sovereign credit default swaps (CDS) positions, subject to limited exceptions.

On 13 January 2025, HM Treasury made the Short Selling Regulations 2025 (SI 2025/29) (SSR 2025). The SSR 2025 creates the new legislative framework for the regulation of short selling in the UK and confers rule-making, supervisory, and enforcement powers on the Financial Conduct Authority (FCA).

On 16 April 2026, the FCA published Policy Statement PS26/5, containing its final rules and guidance and its Statement of Policy on the use of emergency powers. The rules and guidance are contained in a new Short Selling Rules sourcebook within the FCA Handbook (referred to herein as the FCA SSR). The FCA SSR sets out the firm-facing requirements of the new regime. It largely replicates the requirements of the existing regime and consolidates provisions currently contained in the Current UK SSR, the related delegated regulations, the associated technical standards, and European Securities and Markets Authority (ESMA) Q&A guidance.

Timing and transitional arrangements

Together, the SSR 2025 and the FCA SSR will repeal and replace the Current UK SSR with effect from 13 July 2026. The new regime will be implemented in two phases.

• Phase 1 will take effect on Monday 13 July 2026, the main commencement day. From that date, the position reporting and covering requirements under Chapters 2 and 3 of the FCA SSR will apply, and the FCA will publish the Reportable Shares List (RSL). The FCA will also begin publishing anonymised aggregate net short positions (ANSPs) for in-scope companies each working day.
• Phase 2 takes effect on Monday 30 November 2026. On that date, the FCA is expected to update its position reporting system to allow firms to upload and submit multiple notifications in a single bulk submission.

Existing market maker exemptions will be preserved temporarily until 29 January 2027. A market maker that wishes to continue relying on the exemption after that date must re-notify under the new regime prior to 15 January 2027.

Net short positions notified under the Current UK SSR after 31 December 2020 will be carried over and used to calculate the ANSPs published from 13 July 2026. Positions last notified before that date will not be carried over.

Scope of the new regime

Instruments covered

The new regime applies to “short selling activity” in “admitted shares.” An “admitted share” is a share admitted to trading on a UK regulated market or a UK multilateral trading facility. Short selling activity means either a short sale of an admitted share or any other transaction that gives a person a financial advantage if the price or value of that share decreases.

The new regime is therefore materially narrower than the Current UK SSR. It is limited to transactions creating short positions in admitted shares. By contrast, the Current UK SSR applies to shares admitted to trading on a UK trading venue, derivatives relating to those instruments or their issuers, UK sovereign debt, and derivatives relating or referenced to UK sovereign debt.

The principal practical effect of this narrower scope is to remove UK sovereign debt and associated sovereign CDS from the position reporting and covering requirements. From 13 July 2026, market participants will not be required to notify the FCA of net short positions in UK sovereign debt, cover short sales of UK sovereign debt, or comply with any prohibition on uncovered UK sovereign CDS positions. The FCA will, however, retain emergency intervention powers over all financial instruments and may, in exceptional circumstances, impose temporary notification requirements, prohibitions, or conditions in relation to UK sovereign debt and CDS, as explained below.

Territorial scope

The new regime preserves the broad territorial reach of the Current UK SSR. It applies to any person engaging in short selling activity in admitted shares, wherever located and whether the transaction is executed on or outside a trading venue.

Reportable shares list (RSL)

The new regime reverses the current approach to identifying which shares are subject to position reporting and covering requirements.

Under the Current UK SSR, shares admitted to trading on a UK trading venue are subject to net short position reporting and covering requirements unless the FCA has included them on the UK Exempted Shares List (on the basis that the principal trading venue (i.e., liquidity) for those shares is outside the UK). Market participants must therefore (i) identify whether a share is admitted to trading in the UK and (ii) check whether that share is on the UK Exempted Shares List.

Under the new regime, the FCA will instead publish a positive list of shares to which the position reporting and covering requirements apply, being the RSL. Market participants will be able to rely on the RSL to determine which admitted shares are in scope. Shares not on the RSL will fall outside those requirements.

For covering purposes, market participants may rely exclusively on the RSL to identify the shares to which the covering requirements apply. For net short position reporting purposes, the RSL has a more limited function. It identifies the companies in respect of whose issued share capital a reporting obligation may arise and the classes of shares in those companies that are admitted to trading on UK trading venues. It does not identify other share classes issued by the same company that are admitted to trading only outside the UK or not admitted to trading at all. The RSL may therefore be insufficient, on its own, to calculate a net short position where an issuer has more than one class of share or has shares admitted to trading outside the UK. The FCA notes, however, that it expects the large majority of companies on the RSL to have every class of share admitted to trading on a UK trading venue.

The FCA published a test RSL on 16 April 2026, so that firms can test their systems and put operational arrangements in place before commencement. The first live RSL will take effect on 13 July 2026.

The FCA will then review and update the RSL every two years, with the first full review and update scheduled for 1 April 2028. It will also update the RSL monthly, on the first working day of each month, to reflect admissions to and removals from trading on UK trading venues. In exceptional circumstances, the FCA may make ad hoc updates and will notify reporting firms directly of those updates. The FCA will publish both monthly and ad hoc updates by midday so that market participants have sufficient time to calculate and report their net short positions.

Notification and disclosure of net short positions

Private notifications to the FCA

When notifications are required

The net short position reporting thresholds remain unchanged. A person must notify the FCA when its net short position in the issued share capital of a company on the RSL reaches or exceeds 0.2%, falls below 0.2%, or, after reaching or exceeding 0.2%, reaches, exceeds, or falls below any further 0.1% increment. Percentages continue to be truncated, not rounded, to two decimal places.

Positions must be calculated as at midnight on the relevant working day, taking account of that day’s transactions and any change in the issued share capital of the company concerned. The calculation itself need not, however, be performed at midnight.

Notifications must be submitted no later than 23:59 on the working day after the working day on which the reporting obligation is triggered. This is a material extension from the current 15:30 (T+1) deadline.

The reporting obligation starts or stops on the date on which the FCA adds or removes the relevant company from the RSL. Where the FCA adds a company to the RSL and a position becomes reportable, the notification must use the date of addition as the position date even if the position already existed. Where the FCA removes a company from the RSL, no further notifications are required for positions in that company, including close-out notifications.

Calculating net short positions

The methodology for calculating net short positions is largely unchanged. A person must calculate its net short position by netting its short and long positions in the issuer’s issued share capital and must account for positions in financial instruments on a delta-adjusted basis, consistent with the current regime.

The list of financial instruments that must be taken into account is unchanged in substance, but the new regime now states the list exhaustively. It includes options, covered warrants, futures, index-related instruments, contracts for differences, shares or units of exchange-traded funds (ETFs), swaps, spread bets, packaged retail and professional investment products, complex derivatives, certificates linked to shares, and global and American depositary receipts.

Consistent with the existing regime, claims to unissued shares, including subscription rights, convertible bonds, and comparable instruments or transactions, must not be taken into account when calculating a net short position. The FCA declined to adopt broader treatment for convertibles or warrants, including for delta-neutral convertible arbitrage strategies. The rules therefore continue to distinguish between convertible bonds that convert into already issued shares (which must be included in long positions) and convertible bonds that convert into unissued shares (which must not).

ETFs, baskets, and indices

The FCA SSR retains the look-through requirement for indices, baskets, and ETFs. A person must attribute positions held through those instruments to the underlying admitted shares by reference to the weighting of those shares in the relevant instrument. The person must act reasonably using publicly available information on composition and weighting. It need not obtain real-time information that is not readily available free of charge and may use the most recent publicly available information.

The new rules also clarify the treatment of ETFs. Where an ETF is managed on a discretionary basis, the management entity must account for the positions in the underlying shares. Where an ETF is managed on a passive basis, the unit holder must account for those positions. Where a person short-sells units of an ETF, it must always account for the resulting positions in the underlying shares, regardless of whether the ETF is managed on a discretionary or passive basis.

Management activity and group reporting

The distinction between management and non-management activity is retained. A person carrying on management activity must calculate separately its net short position arising from management activity, which captures both collective and individual portfolio management, and its net short position arising from non-management activity.

For management activity, the person must include funds and portfolios delegated to it by a third party, exclude those it delegates to a third party, and calculate the net short position for each individual fund or portfolio under management. Master-feeder and umbrella structures must be calculated at master fund and sub-fund level respectively, thereby turning existing ESMA guidance into a formal requirement. Only net short positions, not net long positions, are then aggregated.

For groups, the position is calculated by aggregating and netting the individual long and short positions of group members, excluding positions arising from management activity. Once the group’s aggregate net short position in a company reaches or exceeds 0.2%, individual group members cease to notify their own positions, and the ultimate parent undertaking, or another designated group member, notifies the position instead.

If a person has previously reported an individual position above 0.2% and that position is then subsumed within group-level reporting, that person must make a same-day notification to that effect. Conversely, if the group position later falls below 0.2% but an individual group member’s position remains at or above that threshold, that person must resume individual reporting on the same day.

The FCA rejected industry calls to permit broader aggregation of management and non-management activity and reporting only at group level, noting that such changes would reduce its visibility over the persons actually conducting short selling activity.

Issued share capital

“Issued share capital” continues to be defined as comprising the total of ordinary and preference shares issued by a company, excluding convertible debt securities. All classes of issued shares must be included, irrespective of voting rights or other characteristics, including treasury shares. Where a company has more than one class of share, the total number of shares issued in each class must be aggregated.

The FCA has issued new guidance on the sources of information that persons may use to identify issued share capital. A person must act reasonably when sourcing a company’s issued share capital, having regard to publicly available information (information that is readily accessible and free of charge). The FCA identifies relevant sources as including DTR 5.6.1R or DTR 5.6.1AR disclosures, Companies House filings, such as SH01 and SH06 filings, and commercial or market data providers.

The FCA rejected industry proposals for a centralised source of issued share capital data or a prescriptive hierarchy of sources but indicated that it will consider, as part of its forthcoming review of the Disclosure Guidance and Transparency Rules, whether to require issuers to disclose issued share capital specifically for short selling purposes.

Public disclosure of aggregate net short positions by the FCA

The new regime requires the FCA to publish, for each working day, the ANSP in relation to the issued share capital of each in-scope company. This is a significant departure from the current public disclosure regime under Article 6 of the Current UK SSR, which requires persons holding net short positions of 0.5% or more to disclose their individual positions publicly.

The ANSP will be the sum of individual net short positions in the company’s issued share capital that have been notified to the FCA at or above the 0.2% threshold and held on the relevant working day. It will be expressed as a percentage of the company’s issued share capital, and include any positions notified under a temporary notification requirement imposed by the FCA using its emergency powers.

The FCA will publish only aggregate data. It will not disclose the identity or number of the underlying position holders or the size of their individual positions. Each ANSP will identify the issuer, the ISIN of its main class of ordinary shares as identified in the RSL, the percentage value of the ANSP, and the latest position date included in the aggregate.

The FCA will publish ANSPs at 12:00 on the second working day after the day to which the positions relate. It may exclude a notified position while it verifies the reliability of that notification and may amend or re-publish a previously published ANSP to reflect late, corrected, or subsequently verified notifications.

Restrictions on uncovered short sales of shares

The rules on uncovered short sales of shares are largely unchanged. They apply only to short sales of admitted shares on the RSL unless the market maker exemption or stabilisation exemption applies.

Regulation 3(1) of the SSR 2025 defines a “short sale” in substantially the same way as Article 2(1)(b) of the Current UK SSR. A short sale is a sale of an instrument that the seller does not own when it enters into the sale agreement, including where the seller has borrowed, or agreed to borrow, the instrument for delivery at settlement. The definition continues to exclude securities lending transfers, repurchase agreements, certain sales by persons who have exercised an option or similar claim or purchased but not yet taken delivery of the instrument, and futures or other derivative contracts for sale at a specified future price.

Before entering into a short sale of an admitted share, the short seller must satisfy one of three conditions: it must have borrowed the relevant shares, have an agreement or other absolutely enforceable claim to receive equivalent shares, or have a locate arrangement with an appropriate third party giving it a reasonable expectation that settlement can be effected when due.

The rules continue to prescribe the agreements and arrangements that satisfy those conditions. These include certain physically settled futures, swaps, and options, repurchase agreements, standing or rolling borrowing facilities, subscription-right arrangements, and other legally binding delivery claims, provided they cover at least the number of shares sold short and support settlement when due.

The short seller must satisfy the covering requirement itself. It may enter into an arrangement with another group member, but it cannot rely on an arrangement entered into by another group member for that member’s own account. The FCA has also added guidance that locate arrangements are “less appropriate” for illiquid shares, reflecting the greater difficulty of reasonably relying on a locate where the relevant shares may be difficult to obtain.

Record keeping

The new regime applies a five-year record keeping requirement to both position reporting and covering arrangements. Under the Current UK SSR, a five-year retention period is specified expressly for records of gross positions making up a notifiable net short position, but no equivalent period is specified for records evidencing covering arrangements. That point was addressed in an ESMA Q&A. The new regime formalises that position by requiring records of borrowing, locate, and other covering arrangements to be kept for five years.

Market maker exemption

The new regime materially simplifies the market maker exemption. Under the Current UK SSR, the exemption operates on an instrument-by-instrument basis: a market maker must notify the FCA before using the exemption for each financial instrument. Under the new regime, a market maker will instead make a single activity-based notification covering all financial instruments in which it conducts market making activity. Once notified, the market maker will not need to submit further notifications for additional instruments.

The substantive conditions for the exemption remain unchanged. The market maker must be a UK investment firm, a UK credit institution, or an overseas entity acting as an investment firm or credit institution in its home jurisdiction. It must also be a member of a UK trading venue or a trading venue in an overseas jurisdiction designated under Regulation 11 of the SSR 2025. Each European Economic Area state is deemed to be designated for this purpose under Regulation 12. The stabilisation exemption is also retained in substantially the same form.

To preserve the FCA’s oversight, the new regime introduces two additional requirements. First, the FCA may require information from market makers in order to satisfy itself that the conditions for the exemption continue to be met. Secondly, each market maker using the exemption must submit an annual attestation, by the first working day of June, signed by a senior person responsible for the entity’s short selling compliance in relation to market making activities. Failure to provide that attestation may lead to withdrawal of the exemption.

The FCA will continue to maintain a public list of market makers using the exemption.

FCA emergency powers

The new regime retains the FCA’s emergency intervention powers. Those powers continue to apply broadly to all financial instruments, including UK sovereign debt and associated sovereign CDS.

In exceptional circumstances, the FCA may require notification of net short positions, or prohibit or impose conditions not only on short sales but also on any other transaction that confers a financial advantage in the event of a decrease in price or value, in any financial instrument. The FCA’s Statement of Policy states that it will apply a high bar when using these powers. Measures may be targeted, including by applying only to new net short positions or increases in existing positions. Depending on the circumstances, the FCA may also provide exceptions, including for risk management; the rolling of existing derivative positions; certain index, basket, and ETF exposures; and delta-neutral convertible arbitrage strategies. Any exercise of the powers must be notified publicly, with the reasons, scope, duration, and exceptions stated, and any measure must be kept under review and withdrawn if the statutory conditions cease to be met.

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The SSR 2025 and FCA SSR represent a significant divergence from the UK short selling regime to that of the EU’s, which continues largely unchanged since it began applying in November 2012. The practice of having a framework set out in the primary legislation, and then having the FCA promulgate rules to implement the overarching framework, appears to be the way the UK will legislate (at least in the financial services arena) from now on (another example of the use of the framework legislation / FCA rulemaking can be seen in the new UK securitisation rules).