The FCA has issued its first short-selling fine of £873,118 to Hong Kong based Asia Research and Capital Management Ltd (ARCM).
For over two years, ARCM had built one of the largest short positions in a UK listed security but didn’t disclose it. Then, ARCM informed the FCA just four days before it submitted all 155 late notifications. The case hit the UK news. Now ARCM have been hit with a fine.
The Final Notice explains that ARCM relied on third party materials that did not reference derivatives trading . So it did not conduct any further due diligence. That’s a surprising oversight for a specialist credit and energy hedge fund manager, the type of manager that’s not normally noted for casualness.
Subsequent to the disclosure, according to Bloomberg and the FT, ARCM became embroiled in a dispute with Premier Oil over a proposed acquisition and the re-scheduling of debt repayments. ARCM had become both the holder of a significant debt position in Premier and of one of the largest net short positions ever in an LSE listed issuer.
A short strategy that seems to have started as an economic hedge to the long debt position, had put ARCM into conflict with management’s attempts to improve shareholder value. This could have raised interesting conflicts of interest, governance and stewardship regulatory issues had this been a UK manager riding two horses at the same time.
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