Last week, new rules from the UK's Financial Services Authority came into force under which hedge funds and other investors must reveal their positions when shorting firms that are in the process of raising capital through rights issues. This rule was imposed by the FSA at short notice after hedge funds and other speculative investors were accused of being responsible for the fall in share prices of several banks that had launched rights issues.

But although hedge funds were forced to show their hand, there seemed to be limited impact on the share price of companies such as HBOS and Bradford & Bingley that were raising capital. In fact, their shares plunged further causing further worry for shareholders and underwriters.

Now it transpires that the GBP4.5bn capital increase launched by Barclays will be backed by several of the largest hedge fund managers in London and elsewhere. GLG Partners, Lansdowne Partners, CQS and Och-Ziff have all agreed to take up a sizable portion of Barclays shares as part of its GBP 1.7bn placing with institutional shareholders, according to the prospectus issued by the bank.

According to the Financial Times, some bankers believe that the hedge funds' investment may have been undertaken as a way of covering short positions in Barclays. However, since the bank's placing is not covered by the FSA rules on rights issues, the extent of short selling in Barclays is not known. What will the regulator do next?