The UK’s Financial Services Authority is calling for new short selling disclosure obligations for all listed stocks, following a review of short selling undertaken after it introduced its temporary ban in September 2008.

On Friday, the FSA released a discussion paper that looks at the arguments for and against short selling, examines possible regulatory constraints on short selling and examines options for enhanced transparency.

“The FSA believes that the benefits of short selling such as price efficiency and liquidity, normally outweigh the disadvantages and proposes that there should be no direct restrictions on short selling,” it concludes.

“However, the FSA sees advantages in having enhanced transparency of short selling and so proposes that disclosure requirements for significant short positions should be introduced for all UK listed stocks.”

At this point the FSA hasn’t settled on the details of a new disclosure regime, as it is seeking international consensus on the issue. The regulator notes that its counterparts in other countries have put a variety of different measures on short selling into effect and it believes that international consensus on the key issues is extremely important. To that end, the FSA is contributing to the work of groups examining the issue at both the International Organization of Securities Commissions and the Committee of European Securities Regulators.

“The FSA is therefore not setting out a detailed blueprint for a disclosure regime at present but will use the feedback from this [paper] to inform the international debate,” it says.

Sally Dewar, managing director of wholesale and institutional markets, said, “This discussion paper offers the opportunity for market participants and others to contribute to the development of future policy. We believe that enhanced disclosure across the whole market is the right way forward. We also consider it to be important that we align our proposals with those being developed on an international basis and we are working towards this.”

The consultation period will close on May 8, following which the FSA will set out its conclusions on a longer term policy for short selling.