FCA Handbook - SSR 2.12 What constitutes a short position

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SSR 2.12 What constitutes a short position

Meaning of short sale

For the purposes of SSR, a short sale in relation to a financial instrument means any sale of an instrument which the seller does not own at the time of entering into the agreement to sell, including such a sale where at the time of entering into the agreement to sell the seller has borrowed or agreed to borrow the instrument for delivery at settlement.

Where there is a combination of legal and beneficial interests in a financial instrument, the instrument is owned by the beneficial owner who assumes the economic risk of acquiring it, including where the instrument is held by a nominee.

A short sale does not include:

(1) a sale by either party under a repurchase agreement where one party has agreed to sell the other a security at a specified price with a commitment from the other party to sell the security back at a later date at another specified price;
(2) a transfer of securities under a securities lending agreement;
(3) entry into a futures contract or other derivative contract where it is agreed to sell securities at a specified price at a future date;
(4) the sale of financial instruments that have been transferred under a stock lending or repurchase agreement, provided either that the securities will be returned or that the transferor recalls the securities so that settlement can be effected when it is due;
(5) the sale of a financial instrument by a person who has purchased the financial instrument prior to the sale but has not taken delivery of that financial instrument at the time of the sale, provided that the financial instrument will be delivered at such time that settlement may be effected when due; or
(6) the sale of a financial instrument by a person who has exercised an option or a similar claim on that financial instrument, provided that the financial instrument will be delivered at such a time that settlement may be effected when due.

Transactions other than short sales to consider when calculating a short position

Short selling activities undertaken in financial instruments through any one or more of the instruments listed SSR 2.14.1R, which could confer a financial advantage in the event of a decrease in the price of the share, must also be taken into account in the calculation of a short position.

Short positions in financial instruments that give rise to a claim to unissued shares, such as subscription rights, convertible bonds and other comparable instruments, must not be considered as short positions when calculating a net short position.