You are here:

FSA clamps down on shorting

Created:
13 June 2008
Written by:
Graeme Davies

The Financial Services Authority has moved to clamp down on short selling after the recent hammering handed out to the shares of companies conducting rights issues.

Advertising

Not that the practice of short selling itself is being attacked; the FSA believes it is "a legitimate technique and not in itself abusive." But it adds that selling short the shares of companies who are trying to raise fresh capital via rights issues "is potentially damaging not only to the issuers in question, but also to confidence in the overall fairness and quality of the UK market."

As a result, it will be necessary for any investor whose holding exceeds 0.25 per cent of a company which is undertaking a rights issue in a short position to reveal that fact to the market by 3.30pm the following day.

The FSA believes this transparency may put some scurrilous short sellers off, but it is also considering other options, such as restricting the lending of stock for shorting in companies that are conducting rights issues, and restricting short sellers from covering their positions through the rights to newly issued shares.

The new disclosure regime comes into place next Friday, and can be seen as a direct response to the beating meted out to shares in Bradford & Bingley and HBOS over recent weeks as both attempted to get rights issues away.

Bradford & Bingley was eventually forced to reprice its rights issue, although that decision was probably as much to do with a fresh profit warning as with short selling. HBOS shares slumped below its 275p rights issue price this week, with a huge proportion of the company's stock out on loan. It has since steadied above 300p.

IC VIEW:

This might curb the worst excesses of short-selling, but it's unlikely to put a complete stop to the problem of capital raising exercises being disrupted. Short-sellers are likely to be pushed into the arms of spread betting firms and contracts for difference brokers instead.

  • Back to top

Products and Services from Barclays Stockbrokers.

The UK’s No.1 Stockbroker

Stocks and Shares

Contracts for Difference

Financial Spread Trading

Gilts and Bonds

Funds Market

FX

Education Centre

Trading Simulator

Advertorial Feature

Spread your risks with spread trading

With so many big moves in the world's financial markets, there have seldom been more opportunities around for spread traders. Isn't it time you joined them?

by Dominic Piccarda