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MFA Wary of Disclosure Requirements for Short Sell

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WASHINGTON (–The Managed Funds Association does not believe that hedge funds should be required to disclose specific short positions according to the comments it submitted to the U.K’s Financial Services Authority on its discussion paper on short selling.

The comments, given by MFA President John G. Gaine, were in response to Option Two of the policy changes under consideration by the FSA, published last October. It would mean the reporting and publication of mandates for a broad range of a manager’s short positions.

“We believe that if a particular investor is identified as a short seller through mandatory disclosure…the disclosure will impact the investor’s ability to obtain information from and access to issuers,” and will accordingly reduce the flexibility of short sellers in acting promptly on new information, Mr. Gaine warned. “The cost of reducing the ability of skilled, informed traders to short securities has an even greater cost–uninformed investors may purchase securities at prices well above their true worth or sell them at prices below their actual value.”

The MFA submitted this comment on Jan. 31, the day that the period for comment on the FSA’s discussion paper 17 was to close.

The discussion paper, issued in October (Previous HedgeWorld Story) acknowledged the contribution of short selling to the efficiency of financial markets, and the MFA comment expresses appreciation for this recognition. But the FSA also expressed concern that more transparency was necessary. The MFA’s response in general terms is that “the present market and regulatory arrangements broadly address any risks posed by short selling and the introduction of specific regulatory constraints in the United Kingdom would not be warranted.”

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