Essential Corporate News - week ending 17 August 2012
17 August 2012

FSA: Market Watch Issue No. 42 - Short selling special

On 15 August 2012, the Financial Services Authority (FSA) published a special short selling edition of Market Watch (Issue No.42). The EU Regulation (EU No 236/2012) on short selling and certain aspects of credit default swaps (Short Selling Regulation) comes into force on 1 November 2012. This edition of Market Watch, although not formal guidance, provides advance notice of the FSA’s approach in those areas where implementation of the Short Selling Regulation is left to the discretion of Member States, or Member States need to implement operational procedures to ensure that market participants can comply with their obligations under the Short Selling Regulation. All proposed changes to the FSA Handbook connected to the implementation of the Short Selling Regulation will be the subject of a formal consultation exercise shortly.

Issues covered by Market Watch include the following:

• Removal of domestic short position disclosure regime: The Short Selling Regulation offers the option that existing national short selling measures can continue in parallel with the European regime until July 2013 (the UK domestic short position disclosure regime is currently found in Chapter 2 of the FINMAR module of the FSA Handbook). The FSA will be consulting on proposals for amendments to the FSA Handbook to remove existing short selling rules with effect from 1 November 2012.
• Penalties policy: The FSA intends to consult on whether it is appropriate to apply the existing penalties policy found in the Decisions Procedure and Penalties module of the FSA Handbook to infringements of the Short Selling Regulation.
• Approach to using temporary suspension powers: The Short Selling Regulation provides that if a financial instrument on a trading venue has fallen by a specified amount or more during a single trading day, the competent authority must consider whether to impose a temporary prohibition or restriction on short selling or otherwise limit transactions in that instrument (so as to prevent a disorderly decline in its price). The FSA considers that each case should be assessed on its merits, but plans to consult on designing a framework that would provide the market with greater clarity on the circumstances in which it would intervene. The FSA also indicates that where it does intervene following a significant intra-day fall, it proposes to notify the market by issuing a market notice through a Regulatory Information Service (RIS).
• Public disclosures of significant short positions: The FSA is developing a web-based solution in order to meet its obligations as a competent authority in relation to public disclosures of significant short positions. Under this proposal, parties with disclosable net short positions (0.5 per cent or above) in UK shares can make their disclosures on the FSA website. As of 1 November 2012, disclosures of net short positions through an RIS will no longer be required.
• Notifications to the FSA of short positions in shares and sovereign debt: The FSA is also working on a web-based solution and will be publishing advice in relation to notifications of net short positions in shares of 0.2 per cent or more and net short positions in sovereign debt which reach the levels specified by the European Commission.
• Market maker and authorised primary dealer exemption process: The FSA expects to be given power by legislation to prescribe how those seeking to benefit from the market maker and authorised primary dealer exemptions (in relation to notification/disclosure of short positions and other aspects) notify it of their intention to take advantage of these exemptions, where the FSA is the competent authority. It states that such individuals will need to address notifications to a designated inbox. Further information will be provided in due course in relation to the examination of applications for exemption from market makers in third countries whose regimes are deemed to be equivalent by the European Commission. The FSA will also be consulting on procedures it will follow where it believes a person has not satisfied the conditions for an exemption.

The FSA has indicated that it will not be publishing its own version of frequently asked questions (FAQs) on the Short Selling Regulation but will be answering questions concerning the procedures it is planning to put in place in order to enable UK market participants to comply with the Short Selling Regulation. The European Securities and Markets Authority (ESMA) will, however, be producing a set of FAQs in relation to the Short Selling legislation and subsidiary legislation. No dates have been given for the publication of the consultations or updates referred to in Market Watch, but the FSA has indicated that any domestic legislation needed to implement the operational and discretionary parts of the Short Selling Regulation will be introduced by HM Treasury.

(FSA, Market Watch: Short selling special: Issue No. 42, 15.08.12)

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BIS: Registration of charges - Draft regulations revising Part 26 Companies Act 2006

On 9 August 2012, the Department for Business, Innovation and Skills (BIS) published:

• the Companies Act 2006 (Amendment of Part 25) Regulations 2012 which repeal Chapters 1 and 2 of Part 25 Companies Act 2006 (CA 2006); and
• the Limited Liability Partnerships (Application of Companies Act 2006) (Amendment) Regulations 2012 which amend (by substitution) Part 9 of the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009,

(together, the draft regulations). BIS also published explanatory notes.

The draft regulations follow a series of Government consultations aimed at modernising and streamlining the security registration regime in the UK by providing a single scheme for registration of company charges irrespective of the place of incorporation of the company. The draft regulations therefore apply to the registration of charges created by companies which are registered in England, Wales, Northern Ireland and Scotland. The main features of the draft regulations are as follows:

• Registrable securities: The draft regulations assume that all charges (as defined in section 859A(7)) can be registered, with the exception of those listed in section 859A(6). BIS had considered excluding charges arising by operation of law, but has instead decided to place the onus on the presenter to determine whether a charge should be registered.
• Filing of a security: The draft regulations introduce electronic filing and also provide for the full text of a charge instrument or document to be available on the public register at Companies House (although some personal information may be redacted). The charge instrument will be accompanied by particulars, the content of which is set out in the draft regulations. The particulars are intended to improve the ease of searching the register and direct the searcher to any other relevant UK register containing information relating to that charge. A unique reference code (URC) will be designated to each charge and it is intended that the URC will aid searches and present a more accurate profile of the extent to which the assets of a particular company are encumbered.
• Consequences of non-registration: The draft regulations remove the mandatory filing regime enforced by criminal sanction (section 860 and section CA 2006) but retain the invalidity sanction (currently found in section 874 and section 889 CA 2006) so that a non-registered security will be invalid against an administrator, liquidator or creditor of the security provider (but there will be no criminal penalty for non-registration).
• Time limit for delivery and definition of “date of creation”: The draft regulations do not amend the 21 day time limit for the delivery of the charge or security to the Registrar of Companies. The draft regulations do, however, set out the date of creation for each type of security and when the 21 day period starts to run in respect of that security.

The deadline for comments on the draft regulations is 7 September 2012. BIS intends to lay the draft regulations before Parliament in autumn 2012, with the regulations expected to come into force on 6 April 2013.

(Companies Act 2006 (Amendment of Part 25) Regulations 2012, 09.08.12)

(Limited Liability Partnerships (Application of Companies Act 2006) (Amendment) Regulations 2012, 09.08.12)

(Explanatory notes to accompany draft regulations revising part 25 of the Companies Act 2006: August 2012, 09.08.12)

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HM Treasury: Wheatley Review of LIBOR: Initial discussion paper

On 10 August 2012, HM Treasury published a discussion paper setting out the initial thinking on the review of the London Interbank Offered Rate (LIBOR) and Euro Interbank Offered Rate (EURIBOR), which is being led by Martin Wheatley, Chief Executive-designate of the future Financial Conduct Authority (Wheatley Review). The Wheatley Review, commissioned by the Chancellor of the Exchequer following the emergence of attempted manipulation of LIBOR and EURIBOR, will report on the following:

• necessary reforms to the current framework for setting and governing LIBOR;
• the adequacy and scope of sanctions to appropriately tackle LIBOR abuse; and
• whether analysis of the failings of LIBOR has implications on other global benchmarks.

The discussion paper notes that although LIBOR is the most frequently utilised benchmark for interests rates globally, referenced in transactions with a notional outstanding value of at least $300 trillion, it has a number of significant weaknesses that have eroded its credibility as a benchmark. It sets out detailed ideas on how LIBOR could be comprehensively reformed in order to deal with issues identified and restore confidence in the rate and states that options for strengthening all aspects of the LIBOR framework should be considered, in particular:

• improvement in the mechanism for calculating LIBOR;
• amendment to the governance of the LIBOR process to make it more independent, robust and transparent; and
• reform of the regulatory framework to bring the administration of or submission to LIBOR within the scope of regulation. If necessary, sanctions could be strengthened.

The discussion paper also proposes that alternative benchmarks which assume some or all of the roles that LIBOR currently performs in the market should be identified and evaluated.

The deadline for comments on the discussion paper is 7 September 2012. The Wheatley Review will aim to present its findings to the Chancellor of the Exchequer by the end of September 2012, with any necessary legislative changes to be considered for inclusion in the Financial Services Bill.

(HM Treasury, Wheatley Review of LIBOR: Initial discussion paper, 10.08.12)

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