On Friday 30 January 2009, Kredittilsynet proposed amendments to the Securities Trading Act concerning short selling to the Ministry of Finance. The background for the proposal was an enquiry from the Ministry on 26 September 2008 and recent experiences in the securities markets.
Kredittilsynet proposes that investors who trade in the Norwegian market be subject to restrictions regarding covered short selling [corrigendum]. Kredittilsynet also proposes that it be empowered to impose a temporary ban on all short selling, both covered and uncovered. The temporary ban may also include derivative contracts that have the same effect on prices as ordinary short selling. It is also proposed that breaches of the bans be punished by the surrender of gains or legal penalties.
Kredittilsynet has also considered whether or not a permanent ban on short selling, i.e. one that also includes covered short selling, should be introduced. Kredittilsynet believes that covered short selling should remain legal for the time being. Should there be an international initiative to impose restrictions on short selling that exceeds that which follows from Norwegian legal provisions and the amendments that follow from Kredittilsynet’s proposal, this will have to be reassessed. A phasing out of the temporary ban on short selling financial equities will be assessed during the course of February–March.
The proposed amendments to the act will provide the authorities with a more effective basis for clamping down on uncovered short selling, which has been seen to lead to delivery problems, most recently in the Tandberg Data case. The authorities will thus be able to punish investors who have sold short without coverage. In addition, the amendments to the act provide the authorities with a basis for acting in circumstances where normal market mechanisms cease to function, whereby opening the way to particularly harmful influencing of prices.
“Kredittilsynet’s proposal aims to improve the legal basis for dealing with problems associated with the short selling of securities,” comments Kredittilsynet’s Director General, Bjørn Skogstad Aamo. “We propose that the obligation that those who sell short have access to the security, in other words that the short sale be covered, be stipulated in the act. We also propose that in certain situations Kredittilsynet be empowered to introduce bans on all types of short selling. We have found no reason to propose a total ban on short selling in Norway at this time, one reason being that such total ban is not common in other countries.”
Contact persons:
Deputy Director General Eirik Bunæs, tel. +47 22 93 98 20, mobile: +47 911 65 817
Head of Section Eystein Kleven, tel. + 47 22 93 98 13, mobile: +47 906 87 501
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Contact persons in the Communications unit:
Senior Communications Adviser Arild Eide Johansen, tel. +47 22 93 99 94,
mobile: +47 971 52 011
Communications Adviser Merete Ulvund, tel. +47 22 93 99 99, mobile: +47 905 99 342
