The Effect of the Accidental Disclosure of Confidential Short Sales Positions

Abstract

EU regulations mandate that short sellers disclose short positions as of 0.2% to authorities, which publicly disclose positions as of 0.5%. In January 2017, the Netherlands Authority for the Financial Markets accidentally disclosed confidential positions. Using the entire register, we show that small positions forecast future underperformance. We use the accidental disclosure as natural experiment to analyze the effect of publishing this information. Abnormal returns are positive after the disclosure. A possible explanation is that perceived short-selling risk on disclosed positions increased, which reduced the appetite for shorting. This is consistent with a post-event drop in abnormal short sales costs.

Keywords: Short Sales, Transparency, Accidental Disclosure, Equity Lending, ESMA

JEL Classification: G14, G15, G23