Australia, Germany join the short selling disclosure fiesta

The following appeared on the ASIC website today:

0-42AD Short position reporting

Friday 5 March 2010


ASIC today has announced decisions made in relation to the following provisions introduced in the Corporations Amendment Regulations 2009 (No 8) (SR No 327 of 2009) (Short Selling Regulations):

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  • to delay the commencement of short seller obligations to lodge short position reports from 1 April 2010 to 1 June 2010; and
  • to reschedule the commencement of ASIC obligations to publish aggregated short position reports from 1 April 2010 to 21 June 2010.

The change in the commencement of the short seller’s obligation to report its short positions will allow short sellers more time to ensure they have the appropriate systems in place to meet their reporting obligations.

ASIC will facilitate an industry-wide pilot test to allow short sellers access to the new reporting infrastructure from 10 May 2010.

Additional information

To assist short sellers and systems developers adequately prepare for the new reporting requirements, ASIC has also revised Information Sheet 98, now titled Short selling: Short position reporting (INFO 98).

INFO 98 includes key tasks and practical information which stakeholders must be aware of prior to the revised start date for the reporting requirements. INFO 98 also contains details relating to the threshold for short position reporting and other technical amendments, as well as information about the FIX Rules of Engagement. In the period leading up to implementation, ASIC will regularly update INFO 98.

ASIC will shortly publish a revised Regulatory Guide 196 Short selling (RG 196). This document will contain more details about the decisions described above. Other updates in this document will reflect recent changes in the law, some exemptions provided to allow for certain naked short selling and guidance in relation to the disclosure and reporting requirements that apply.

Questions about short position reporting can be directed to shortpositionreporting@asic.gov.au or visit www.asic.gov.au/shortselling. for further information.

And in Germany:

Bloomberg Europe reports that "Germany’s financial regulator Bafin published rules requiring disclosure of short selling in stocks of banks and insurance companies including Deutsche Bank AG, Commerzbank AG, and Allianz SE, partially implementing a Europe- wide regulatory proposal."

These new developments follow on from the announcement in Hong Kong earlier in the week but more importantly from the announcement of its report into Hedge Fund Systemic Risk reporting by IOSCO.

SFC welcomes IOSCO’s appointment

During 2009 the SFC in Hong Kong conducted a number of two hour visits to alternative asset managers with the purpose being to better understand their different businesses, investment strategies, control environment and outlook.  Stephen Po, the Director of Intermediaries Supervision attended those meetings.

This week the SFC announced that Mr Po had been appointed to head one of IOSCO's standing committees.

We wish Stephen all the best.  The SFC announcement is below:

The Securities and Futures Commission (SFC) welcomes the appointment by the International Organization of Securities Commissions (IOSCO) of Mr Stephen Po to the position of Chairman of the IOSCO Standing Committee 3 (SC3) on Regulation of Market Intermediaries.

Mr Po is currently Senior Director and head of the SFC’s Intermediaries Supervision Department.

SC3 is part of IOSCO’s standard setting body that is responsible for reviewing and proposing standards on the regulation and supervision of market intermediaries in a cross-border environment. SC3 currently comprises members from 16 regulatory authorities in Europe, the United States and Asia.

“Stephen has been closely involved in developing and implementing initiatives to strengthen the business conduct and prudential regulation of intermediaries. I am confident that his extensive experience in this area will prove to be a valuable asset to IOSCO. Stephen’s appointment to chair the SC3 is yet another indication of the SFC’s strong continued support of IOSCO’s initiatives to improve global market standards”, the SFC’s Chief Executive Officer, Mr Martin Wheatley said (Note 1).

The Problem with Credit Rating Agencies

By Lisa Valentine

Ethiopis Tafara, Director of the SEC Office of International Affairs, brought up some interesting questions about the use of credit rating agencies during a speech last week at the IOSCO Technical Committee Conference in Basel.

Although he applauded the revised IOSCO Technical Committee Code of Conduct for Credit Rating Agencies, he lamented the lack of enforcement direction. Said Tafara, “While market participants could judge for themselves the value of promises made by a CRA…there was no mechanism by which market participants—or regulators—could verify whether those promises were being kept.”

Editors Note

We see that Jules Kroll recently appeared on CNBC saying that he is looking to start an independent CRA.  Jules has also recently become a member of the board of the Managed Funds Association.  For more info on what Jules is up to search Kroll and K2 Global on google.  Good luck Jules.

 

Joint Forum Calls for SPE Risk Transparency

By Lisa Valentine

The Joint Forum, a panel comprised of the Basel Committee on Banking Supervision, the International Organization of Securities Commissions (IOSCO), and the International Association of Insurance Supervisors (IAIS) recently published a study called “Report on Special Purpose Entities” which advocates policy changes to improve the regulation of SPEs.

An SPE (also called Special Purpose Vehicles, or SPVs or affectionately "bankruptcy-remote entity") is an entity created to acquire and finance specific assets and liabilities. The assets in most SPEs are protected from creditors in the event of bankruptcy. Perhaps the most well-known example of SPE abuse is Enron: SPEs were a major tool Enron execs used to hide losses.

The use of SPEs increased in the few years before 2007 but the vehicle has since fallen somewhat out of favor. However, as markets recover, expect to see the usage of SPEs increase.

The Joint Forum clearly and correctly states that SPEs by their nature are not problematic and that SPEs have been used successfully for many years to provide liquidity to markets help markets run efficiently. The problem is that sometimes the parties to the SPE transaction don’t really understand the risks involved. 

Below is a synopsis of what the forum recommends:

• Market participants need to analyze and monitor the risks of a SPE throughout the life of a transaction and pay attention to changes in the risk profile. Bottom line is to keep reassessing risk.
• When determining risk, look at all factors that increase the complexity of the transaction, including the way the SPE is structured.
• Regulate SPEs depending on complexity.
• Monitor on an on-going basis the quality of transferred exposures compared to the risk profile of remaining portfolios and determine how this will impact the balance sheet.
• Aggregate, assess and report SPE exposure risks the same as other types of risks.
• Standardize definitions, documentation and disclosure requirements of SPE transactions and communicate any divergence from standards to investors.
• Regulators should monitor SPE activity and stay attuned to any developments that can lead to systemic weakness.

Of course, these are only recommendations and each country can interpret or even ignore them as they see fit. However, let’s not over-regulate SPEs as they do serve an important purpose for efficient markets. The parties entering into an SPE transaction just need to do so with their eyes wide open. It’s called due diligence.

 

AIMA comments on IOSCO hedge fund recommendations

On June 22 AIMA also weighed in with its comments: The Alternative Investment Management Association (AIMA) – the global hedge fund industry association – has welcomed the principles for hedge fund regulation published by the International Organization of Securities Commissions (IOSCO) today. Andrew Baker, AIMA CEO, said, “We are very happy to welcome the publication of this report today because AIMA has already announced its support for several of the high level principles mentioned in it.

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MFA response to IOSCO Hedge Funds Report

On 22 June IOSCO released its recommendations with respect to the regulation of hedge funds. The press release below is from the Managed Funds Association with their comments WASHINGTON, DC –Managed Funds Association (MFA) President and Chief Executive Officer Richard H. Baker, issued the following statement in response to the International Organization of Securities Commissions’ (IOSCO)Technical Committee publication today of Hedge Funds Oversight: Final Report.

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