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UK watchdog fines fund ARCM over Premier Oil short selling breaches

Kirstin Ridley and Clara Denina
·2-min read
FILE PHOTO: The logo of the new Financial Conduct Authority in the Canary Wharf business district of London
FILE PHOTO: The logo of the new Financial Conduct Authority in the Canary Wharf business district of London

By Kirstin Ridley and Clara Denina

LONDON (Reuters) - Britain's markets watchdog fined hedge fund Asia Research and Capital Management (ARCM) on Wednesday for a lack of transparency over a short position in Premier Oil <PMO.L>, the first such penalty for a breach of short-selling rules.

The Financial Conduct Authority (FCA) fined Hong Kong-based ARCM 873,118 pounds ($1.13 million) for repeatedly breaching reporting rules and failing to provide important information to both the regulator and the market.

ARCM declined to comment.

Between February 2017 and July 2019, ARCM failed to make 155 notifications to the FCA and 153 public disclosures of its position in Premier Oil and built a short position equivalent to 16.85% of Premier Oil's issued share capital, the FCA said.

It took another 106 trading days before ARCM notified the FCA and disclosed its position, but the FCA said the fund reported the breaches as soon as it identified them and was able to, partly because social unrest in Hong Kong at the time barred staff from accessing the office.

Simon Morris, a partner at law firm CMS, said the penalty for non-intentional and self-reported breaches showed the FCA's "unforgiving approach towards breaches of market reporting requirements".

ARCM's fine was reduced by 30% because it fully cooperated with the FCA and beefed up controls.

The fund's net short equity position, coupled with its status as Premier Oil's biggest creditor, led to a bitter battle with the FTSE 250 group after it opposed the company's refinancing plans.

One source familiar with the situation said ARCM's short position was a hedging tool often used by credit funds and represented only a fraction of its debt exposure.

Premier Oil, which traces its history back to the 1930s, underwent a debt restructuring in 2017 after the last oil price collapse and last week agreed to be taken over by private equity-backed oil and gas group Chrysaor.

(Reporting by Kirstin Ridley and Clara Denina, editing by Louise Heavens and Elaine Hardcastle)