Hong Kong's Securities and Futures Commission (SFC) will introduce a short-position reporting regime to "enhance transparency of short-selling activities" in Hong Kong.

The widely expected move by the SFC was announced following a consultation period during which the regulator received 21 responses from market participants to its July 31, 2009, consultation paper on increasing short-selling transparency. This paper discussed two possible approaches. The first was to enhance current transactional reporting and the second was to introduce a new short-position reporting model.

"A build-up of large short positions may be potentially disruptive to market stability," said SFC chief executive, Martin Wheatley. "A short-position reporting regime will not only complement Hong Kong's robust short-selling regulatory framework but will also provide a more complete picture of short-selling activities in our market."

Under the proposed regime, the reporting obligation will be triggered if a short position is equal to or exceeds 0.02% of the issued share capital of a listed company, or a market value of HK$30 million, whichever is lower. The SFC said weekly reports must be submitted until the short position falls below both trigger levels. The SFC will publish aggregated short positions of each stock on an anonymous basis a week later.

The proposed short-position reporting regime is applicable for constituent stocks of the Hang Seng Index, the H-shares Index, financial stocks and other stocks specified by the SFC. Derivatives will not be included.

The new reporting system will be implemented through the introduction of subsidiary legislation.