FSA confirmed on 14 January that the short selling ban will be lifted, as anticipated, tomorrow (16 January 2009). In FSA's view, the market conditions that initially made the ban necessary no longer persist and it has emphasised that short selling is a "legitimate technique" in normal market conditions.

The disclosure requirement, which was introduced by the FSA at the same time as the ban will, however, remain in force (in an amended form) until 30 June 2009 and will continue to act as a deterrent to abusive market behaviour.

Given the urgency with which the initial measures were introduced to counteract rapidly falling share prices in UK financial institutions in the wake of the collapse of Lehman Brothers (September 2008), there was no opportunity to consult with the UK market before implementing the ban and disclosure requirement.

This time around, FSA set out its proposals in a consultation paper and gave the UK market a short consultation period (5 days) to respond (CP09/1 "Temporary short selling measures"). FSA received an impressive 33 responses, the majority of which were in favour of FSA's proposal to:

1. allow the ban to expire

2. retain the disclosure obligation but in an amended form until 30 June 2009

We have summarised the new measures applicable in the UK following FSA's consultation and have also provided an update on the status of the EEA short selling measures.

There is a clear shift from the summary we provided in September 2008 ( click here to access) - once heightened levels of supervision have been downgraded and many of the measures taken by the EEA regulators are due to expire between January and March 2009.

The focus is no longer on 'fire-fighting' but on consulting with the internal market and other regulators on long-term solutions.

FSA will consult shortly on its long-term proposals, focusing on the wider market, and we will update you via Law Now once this consultation commences.

For an overview of the updated summary of short selling measures please click here.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 15/01/2009.