Friday, 19 September 2008

Shorting again

So, the FSA has decided to clamp down on shorting in respect of financial stocks. Gotta say it's a bit hard to maintain the line that shorting is a legitimate tactic whilst trying to stop people from doing it. Also, will be interesting to see if there are any moans from non-financial companies whose shares are being shorted.

It would be also interesting to see what kind of trading costs have been incurred in all this. HBOS shares have been driven down and bounced back up. Behind all that is a lot of trading. Someone, somewhere is picking up the bill for it. Would be a shame if it's our pension funds. On that point notably CalPERS has stopped stock-lending in respect some financial stocks (including Goldmans).

The Board of the Financial Services Authority (FSA) today (Thursday 18 September) agreed to introduce new provisions to the Code of Market Conduct to prohibit the active creation or increase of net short positions in publicly quoted financial companies from midnight tonight.

In addition, the FSA will require from Tuesday 23 September daily disclosure of all net short positions in excess of 0.25 per cent of the ordinary share capital of the relevant companies held at market close on the previous working day. Disclosure of such positions held at close on Friday 19 September will also be required on Tuesday 23 September.

The FSA stands ready to extend this approach to other sectors if it judges it to be necessary.

These provisions will remain in force until 16 January 2009, although they will be reviewed after 30 days. A comprehensive review of the rules on short selling will be published in January.

Hector Sants, chief executive of the FSA, said:

"While we still regard short-selling as a legitimate investment technique in normal market conditions, the current extreme circumstances have given rise to disorderly markets. As a result, we have taken this decisive action, after careful consideration, to protect the fundamental integrity and quality of markets and to guard against further instability in the financial sector."

The detailed changes to the Code of Market Conduct, and a schedule of the companies whose securities are covered by them, will be published before the market opens tomorrow (Friday 19 September).

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