November 8, 2002

One Step Toward Transparency in U.K. Short Selling

LONDON (HedgeWorld.com)--CRESTCo Ltd., which operates a real-time settlement service for U.K. and Irish securities, launched a web site Monday that, if plans germinate, starting January will allow subscribers to see how many shares hedge funds or other investors have borrowed, information that will (imperfectly) allow an inference about the amount of short selling underway.

The web site, prepared in collaboration with Securities Finance Systems Ltd., will use aggregated and anonymous data available to CRESTCo and will present its figures company by company, sector by sector and across the whole market. It will offer historical data back to mid-1999. CRESTCo is seeking clearance on the project from its corporate members.

Subscribers will pay a maximum of ?1,000 (US$1,560) or a minimum of ?100 a year, depending on the level of information required. A cheaper basic version is being considered.

Lending figures for FTSE 350 stocks will be available with a 24-hour delay. Those of less liquid stocks will be available with a five-day delay.

Earlier this month, the U.K.'s Financial Services Authority published a discussion paper about the range of policies it might pursue to increase the short side's transparency. It considered the use of stock borrowing as a proxy for short-selling activity but warned that such figures would be less helpful that direct information.

"In its raw form this data involves considerable double counting because of the significant involvement of intermediation in this market."

But the statement of welcome on the newly launched web site's homepage strikes a more upbeat note about the value of these figures. "The Service is based upon settlement instructions which carry a specific securities financing flag, relating to trades which are executed through specific CREST settlement messages," it said. "These may include a whole range of securities financing transactions such as securities loans and repo's in both equity and debt products. Except in some special technical circumstances, the sum of these deal types can serve as a proxy for short-selling data."

In mid-September, CRESTCo completed a merger with Euroclear, the Brussels-based settlement system.

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