By Charlie Conchie
The founder of famed short seller Muddy Waters has slammed European rulemakers for “regulatory overreach” today and said the EU’s anti-short seller position was distorting markets.
Speaking with the Alternative Fund Insight podcast, Carson Block, who has waged campaigns with Austin, Texas-based Muddy Waters against London firms including Burford Capital and NMC Health in London, laid into rules in Europe which require short sellers to disclose their positions in companies publicly.
Block’s $230m outfit Muddy Waters bets against the stock of companies before publicly calling out faults and profiting from falls in its share price. However, he said his operations across Europe had been hampered by red tape.
“There is no question in my mind that the public disclosure requirement has discouraged short selling [in Europe],” he said. “It has also made pricing less efficient and distorted trading.”
Regulators in the UK are currently mulling repealing EU-era short-selling rules in the UK as part of a sweeping post-Brexit regulatory refresh.
The Financial Conduct Authority currently publishes a full list of disclosed short positions daily after the European regulator mandated firms in 2012 to disclose short positions of more than 0.5 per cent of total issued share value. He claims the tweaks were a “solution in search of a problem”, however.
“It is not for me to comment on whether Brexit makes sense, but I am sympathetic with the perception that the EU is frequently engaged in regulatory overreach,” he said.
Block said the consequence of the rules in practice was that short sellers slowly build up a position to the disclosure threshold before quickly ramping up their position after passing it, which distorted pricing.
“[Short sellers] don’t win because we are getting lower entry prices. If you are of the view that short selling is dangerous and damaging long-holders, well that doesn’t help long holders,” he said. “Nobody wins from that distortion.”
UK lawmakers have thrown their weight behind repealing regulation on short selling in recent weeks. City minister Andrew Griffith said in a speech this month that short selling was an “important tool in financial markets”.
“The UK should therefore have regulations that support it and do not place excessive burdens on market participants,” he said.
He added that the area was “ripe for reform” with the aim of “reducing red tape and making markets work better”.
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