IMPORTANT NOTICE TO ALL CLIENTS
Date: 3rd October 2008
Time: 16:00hrs BST.
For the attention of:.
The Compliance Officer/Chief Executive
Dear Sirs,
Short-selling rules
In the light of the current financial crisis, regulatory authorities across the world have intervened to stabilise the markets by adopting a series of new measures regarding the short-selling of equity stocks.
The UK’s Financial Services Authority "FSA" and the US Securities and Exchange Commission "SEC", together with other national regulatory agencies have introduced new rules to prohibit either the short-selling of designated financial stocks, including intra-day shorts or the practice of short selling in all equity stocks (together the "Prohibitions"). These Prohibitions apply, for the purpose of the UK market abuse rules, to all financial stocks designated by the FSA as well as financial instruments related to such stocks.
MF Global UK Limited and MF Global Securities Limited (together "MFG") have a regulatory obligation to ensure that both firms comply with these new rules and take steps in order to avoid facilitating any transaction in breach of the Prohibitions. The purpose of this letter is to set out and inform you of the measures and procedures we have taken to comply with the Prohibitions, and we have sought, wherever possible to give some indication of the short-selling prohibitions in force in jurisdictions worldwide.
You will need to be familiar with the contents of this communication as this is likely to impact on your dealings with MFG. You are reminded that it is your responsibility to ensure that you trade in accordance with the applicable rules and regulations of the relevant jurisdictions and you should seek legal advice if you are unclear of their meaning or effect. Regulators in some jurisdictions have also reminded market participants that it is a rule breach to fail to deliver on securities sold.
In addition to this, a number of regulators have published statements discouraging the lending of the stock of financial institutions which has resulted in illiquidity in the lending market.
In the light of the Prohibitions and cognisant that their scope and application might change at short notice, you are advised to check the website of the relevant jurisdiction’s applicable regulations before you engage in any transactions that involves the short-selling of stocks.
MFG has taken the following measures to comply with the Prohibitions which are applicable with immediate effect:
The SEC has introduced similar rules prohibiting short selling of any publicly traded common equity of any of specified financial companies, chosen and published by each national securities exchange.
Other Jurisdictions
Since 19th September, other jurisdictions in Europe, Asia and the Americas have introduced some form of short-selling prohibition and/or restriction. Based on publicly available information we have compiled in the attached Annex a review of short-selling rules introduced by securities regulators globally. This is intended as a guide only and is not a substitute for you obtaining your own advice on these matters. While we believe the information in the Annex is correct as at the date of this letter, we cannot ensure that this is the case and you are advised to check the regulators’ websites to assess if any material changes have been made.
MFG accepts no responsibility for any failure on the client’s part to comply with the Prohibitions or any other rules and regulations which may apply.
Annex – A global overview on the new short-selling measures
1. United Kingdom
The Financial Services Authority has prohibited the creation of, or increase in a net short position giving rise to an economic exposure to shares in designated financial institutions and insurers. The prohibition will cover both naked and covered short sales in these stocks.
There is an exemption for persons acting as marker makers.
Link to FSA short selling rules and related materials (including FAQs): http://www.fsa.gov.uk/pages/Library/Policy/Handbook/short-selling.shtml
2. United States
The SEC has prohibited any person from effecting a short sale in the publicly traded securities of certain designated financial institutions. The prohibition covers any short sales of publicly traded common equity of any of the designated financial companies as specified by the regulated markets and also bans naked short selling on any equity.
The SEC also introduced enhanced delivery requirements on sales of all equity securities, by imposing a penalty on any participant of a registered clearing agency, and any broker-dealer from which it receives trades for clearance and settlement, for having a fail to deliver position in any equity security.
Link to SEC short-selling rules and related materials:
http://www.sec.gov/news/press/2008/2008-211.htmNasdaq has published a list of the issuers affected by the SEC rules:
http://www.nasdaqtrader.com/TraderNews.aspx?id=RA2008-021NYSE Euronext has also published a list of the issuers affected by the SEC rules:
http://exchanges.nyse.com/archives/2008/09/latest_short.php3. Australia
The Australian Securities and Investments Commission ("ASIC") has prohibited any short selling of financial and non-financial securities, managed investment products and stapled securities quoted on licensed markets in Australia subject to certain exceptions. The prohibition extends to intra-day shorts. There are some exemptions in relation to covered short-selling only.
The exemptions in relation to covered shorts are now available for:
1. sales made by market makers for the purpose of hedging their market making activities;4. Austria
The Financial Market Authority ("FMA") announced that the concluding and holding of net short positions in relation to any shares listed in Austria may qualify as market abuse. ‘Net short positions’ are defined as offsetting and/or aggregated positions in a financial instrument or with regard to an issuer.
http://www.fma.gv.at/cms/site//attachments/7/3/3/CH0217/CMS1222177895943/rundschreiben_2008.09.22_en.pdf5. Belgium
The Commission Bancaire, Financière et des Assurances ("CBFA") has imposed a restriction on naked short sales of shares in financial institutions listed on Euronext Brussels. Financial institutions have also been requested to abstain from lending the shares concerned, except where this is needed to cover an existing position. The restriction covers financial instruments with voting rights, and applies to transactions entered into on own account or for the account of third parties.
http://www.ejustice.just.fgov.be/mopdf/2008/09/25_2.pdf6. Canada
The Ontario Securities Commission ("OSC") has prohibited both naked and covered short-selling of securities of certain financial issuers on the Toronto Stock Exchange and also inter-listed in the US. Alberta, British Columbia and Quebec securities commissions have published orders identical to the OSC order banning short selling in a prescribed list of issuers.
Short selling of these securities is prohibited unless it is:
a. conducted in accordance with the Universal Market Integrity Rules (UMIR) Rule 3.1 (Restrictions on Short Selling).The Investment Industry Regulatory Organisation of Canada has released its guidance on the new short selling rules in Ontario:
http://docs.iiroc.ca/DisplayDocument.aspx?DocumentID=4FF90709EB024D4EB6766356B18C0971&Language=en7. France
The Autorité des Marchés Financiers ("AMF") has prohibited naked short selling of shares in credit institutions and insurance companies. The regulator has also asked financial institutions to abstain from lending the shares concerned, except where this is needed to cover existing position, perform an obligation contracted prior to the coming into force of the rule or where transaction has no link with a short economic position.
The prohibition does not apply to investment service providers who act as market makers, liquidity providers or counterparties to a block trade.
The AMF has also reminded market participants of their obligations to deliver the securities sold within three days:
http://www.amf-france.org/documents/general/8420_1.pdfThe AMF has published a series of documents on its website including an FAQ:
http://www.amf-france.org/documents/general/8423_1.pdf8. Germany
The Bundesanstalt für Finanzdienstleistungsaufsicht ("BaFin") has issued new measures prohibiting naked short selling in relation to shares of designated issuers in the financial services industry. The new rules, FAQs and other related documents are available from the BaFin website in German.
http://www.bafin.de/cln_116/nn_720788/SharedDocs/Veroeffentlichungen/EN/Service/Interpretativedecisions/ae__080922__faq__leerv__en.html9. Greece
The Capital Market Commission ("CMC") took temporary measures in relation to short selling by requiring members of the Athens Exchange which perform short sales on shares to flag them as such when entering the relevant sale orders.
In addition to this, the CMC will require the daily publication of the total amount of short sales performed by share and the total number of shares by issuer that have been lent. Investment firms and credit institutions which execute orders on behalf of their clients have to ensure that their clients who sell shares are in the position to deliver the shares sold on time within the relevant settlement term.
http://www.hcmc.gr/pages/index.asp10. Hungary
The Pénzügyi Szervezetek Állami Felügyelete ("PSZAF") has imposed a requirement in relation to trades concluded between 29 September and 31 December 2008. All investment firms and credit institutions providing investment services supervised by PSZAF that have trading rights on the Budapest Stock Exchange ("BSE") must make a daily report to PSZAF.
Firms are required to report short sales in relation to any shares listed on the BSE, including intra-day positions, where the short position represents 0.01% or more of the total issued share capital.
http://english.pszaf.hu/11. Ireland
The Irish Financial Services Regulatory Authority ("Financial Regulator") has prohibited the short selling (both naked and covered) of stock in certain Irish publicly quoted financial institutions. There is an exemption for market makers.
http://www.financialregulator.ie/frame_main.asp?pg=%2Fnews%2Fnw%5Farticle%2Easp%3Fid%3D401&nv=%2Fnews%2Fnw%5Fnav%2E.asp12. Italy
The Commissione Nazionale per le Societa’ E La Borsa ("Consob") issued an order prohibiting any short selling of shares in banks and insurance companies listed on Italian regulated markets. There are exceptions for:
Market makers as defined in the Italian single financial act. This covers a "person offering his services to trade directly on regulated markets and multilateral trading facilities on a continuous basis, buying and selling financial instruments at self-established prices;
Specialists and liquidity providers as defined in the rules of Borsa Italiana.
http://www.consob.it/mainen/documenti/english/resolutions/res16622.htm13. Korea
Naked short selling is prohibited in Korea under existing laws and the Financial Services Commission ("FSC") has proposed to further enhance investor and broker compliance with the short selling regulation by applying the following restrictions on short selling:
§ Local brokers should verify the availability of stocks with all investors for any covered short selling.14. Luxembourg
The Commission de Surveillance du Secteur Financier ("CSSF") has prohibited naked short sales in financial institutions or insurance companies admitted to trading on a regulated market. This prohibition applies equally to own account transactions or transactions on behalf of a client.
Market participants executing transactions should ensure that their clients have the necessary cover for any transaction.
http://www.cssf.lu/uploads/media/pressrelease__short_selling190908.pdf15. Netherlands
The Authority for Financial Markets ("AFM") has introduced a ban on short selling which covers naked short selling on any equities of financial institutions traded on Euronext, whether for own account or for customers.
Related documents including the new rules and an FAQ is available on the AFM website:
http://www.afm.nl/corporate/default.ashx?documentid=1148316. Portugal
The Comissão do Mercado de Valores Mobiliários ("CMVM") has prohibited naked short selling on Euronext Lisbon and PEX. Members should not accept or execute sale orders for stocks in the relevant financial institutions if the person issuing the order does not hold (or is not in a position to ensure that it holds) the stocks at the time of transmission of the order.
The CMVM has published on 25 September a general statement of opinion on the practice of short-selling:
http://www.cmvm.pt/NR/exeres/3D30113F-35FE-453A-AD74-354A9B57F71.htm?WBCMODE=PresentationUnpublished17. Russia
On the 26th September 2008 the Federal Financial Markets Service of Russia has lifted the bans on short selling, uncovered and margin trades.
http://www.ffms.ru/document.asp?ob_no=14431018. Singapore
The Singapore Exchange ("SGX") has announced that it will not prohibit short-selling, but will tighten rules to deter the failed delivery of stocks in order to discourage "naked" short-selling, and to enhance transparency in the "buying-in" market.
Traders who cannot deliver shares sold will be subject to a penalty of 5% of the value of the failed trade, subject to a minimum of S$1,000, in addition to the current processing fee for "buying-in" of S$30 per contract. SGX requires market participants not short-sell in the buying-in market as it runs counter to the objective of buying-in. Further, traders who fail to deliver shares in the "buying-in" market may be liable to a penalty of S$50,000 and/or disbarment from participating in the "buying-in" market.
Link to press release: http://info.sgx.com/webnewscentre.nsf/b9c790d0d5ba5d2548256dcf0049ce28/48256838002f07b1482574cc00444fe0?OpenDocument
http://info.sgx.com/webnewscentre.nsf/b9c790d0d5ba5d2548256dcf0049ce28/48256838002f07b1482574d00040a563?OpenDocument19. Spain
The Comision Nacional Del Mercado de Valores ("CNMV") has always prohibited naked short sales. Regulated market members must ensure that their clients hold the securities before processing their orders to sell, either by relying on their own registers if they act as their custodians or by obtaining the explicit assurance by the client that they are not conducting a naked short sale.
http://www.cnmv.es/index_n_e.htm?/consultas/prensa/prensa_e.htm%7E/english/p_aldia_2_e.html20. Switzerland
The Swiss Federal Banking Commission ("SFBC") and the Swiss Exchange ("SWX") have prohibited naked short sales in all securities.
In a Market Notice issued on 30 September 2008, SWX Europe has prohibited the creation or increase of net short positions, either naked or covered, in Swiss financial stocks on SWX Europe. The borrowing of stock to cover the increase of net short positions in Swiss financial stocks is not permissible.
Whilst the SWX Europe prohibition only applies to securities listed in its release, the SFBC and SWX prohibitions apply to all securities listed on SWX. The prohibitions apply to all trades, whether they are on-exchange or OTC transactions.
http://www.ebk.admin.ch/e/aktuell/index.html21. Taiwan
On the 30th September 2008, the Taiwanese Financial Supervisory Commission ("FSC") has prohibited all short selling and securities borrowing on shares listed on the Taiwan Stock Exchange ("TSE") and the GreTai Securities Markets ("GTSM").
http://www.fsc.gov.tw/mp.asp?mp=5Other Jurisdictions
Japan
Japan has already in place restrictions on short selling that target not only shares in financial firms but also those in all listed companies. In addition to requirements to verify and mark whether the transactions in question are short selling or not, there is an “uptick rule requirement” that short selling are prohibited, in principle, at prices no higher than the latest market price announced by the stock exchange concerned.
The Japanese Financial Services Agency ("FSA") has not introduced any new rules to curb short-selling. However, a statement by the Minister for Financial Services issued on 22 September 2008 indicated that the FSA is monitoring market developments at a "heightened alert level, paying heed to international cooperation toward stabilising, and protecting the integrity of, the international financial system". Short-selling is already restricted in Japan: short-selling is prohibited when it is "naked" and where the price is lower than the latest market price announced by the relevant stock exchange.
Link to press release: http://www.fsa.go.jp/en/announce/state/20080922.html
China
Whilst there are no regulations which explicitly prohibit short-selling in China, there are no mechanisms in place in China to allow for short-selling. As such, no action has been taken by the Chinese regulators.
Thailand
The Securities Exchange Commission has not introduced any new rules to curb short-selling. Naked short-selling is already prohibited in Thailand.
Indonesia
Based on publicly available information, the Indonesian’s Capital Markets Supervisory Agency ("CMSA") is understood to be working on draft regulations to restrict short-selling. The CMSA website should be consulted for latest updates.
Link to CMSA website: http://www.bapepam.go.id/
Date:19/09/08
Time: 12.30 BST
The UK's Financial Services Authority (FSA) has introduced emergency new rules to prohibit the active creation or increase of net short positions.The new rules came into effect at 00.01 a.m on Friday 19 September 2008 and are intended to prevent the short selling in a list of designated stocks of UK public listed companies. This list currently includes 29 stocks.
The US Securities Exchange Commission (SEC) has also introduced rules to restrict short selling in US public listed companies.
It is your responsibility to make sure that you comply with the new rules and you should seek advice if you are unclear on their meaning or effect.
For information on the new rules please see the FSA and SEC websites: -
Link to FSA press release: http://www.fsa.gov.uk/pages/Library/Communication/PR/2008/102.shtml
Link to SEC press release: http://www.sec.gov/news/press/2008/2008-211.htm
Any reference in this website to services offered by MF Global involving short selling should be read in conjunction with the above rules. We will endeavour to update information regarding the new Rules, however, you should access the FSA and SEC websites for the most current information. Please note that other regulators/jurisdictions may impose similar requirements and you are advised to check with local regulators prior to trading.