Consultation on expanded short position reporting in Hong Kong

In 2012, Hong Kong introduced a requirement to report short positions in certain securities listed on the Stock Exchange of Hong Kong (SEHK) on a weekly basis. The Securities and Futures Commission (SFC) has now issued a consultation paper proposing to extend the reporting requirement to short positions of all listed securities that are eligible for short sale on the SEHK (Designated Securities). Designated Securities include collective investment schemes such as exchange-traded funds.

For Designated Securities that are stocks, the threshold for reporting will stay the same as at present. That is, a reporting obligation will arise if the short position exceeds the lower of (i) HK$30 million and (ii) 0.02% of the value of the total number of the relevant shares in issue. For Designated Securities that are interests in collective investment schemes, the threshold for reporting will be a short position in the interests of the collective investment scheme that exceeds HK$30 million.

The SFC also proposes amending the Securities and Futures (Short Position Reporting) Rules:

• to clarify how to determine compliance with the reporting threshold where the relevant securities are denominated in a foreign currency;

• where the SFC exercises its power to require daily reporting of short positions, to give flexibility for the SFC to increase the frequency of reporting for some (rather than all) Designated Securities; and

• to give flexibility for the SFC to designate an alternative electronic system for submission of short position reports.

The SFC also noted in the consultation paper the obligation of market participants to properly complete the prescribed Reportable Short Position Form when reporting short positions through the SFC’s online Short Position Reporting Service:

“With regards to the use of the Short Position Reporting Service, as there has been a number of instances in the past where reports submitted had failed to comply with the Notes [to the Reportable Short Position Form], the SFC would like to remind market participants that they must complete the Form in accordance with the directions and instructions set out in the Notes. Otherwise, they may not be regarded as having complied with the SPR Rules despite the reports having been submitted.”

The SFC consultation paper is available here. The consultation is open for comment until 31 December 2015.

Key Contacts

Scott Carnachan

Consultant | Financial Services

Email or call +852 2825 9265