FSA introduces ban on short selling of financial stocks

In addition, from next Tuesday, September 23, the FSA will require 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 the close on Friday, September 19 will also be required next Tuesday.

The bar on short selling applies to the stock of UK banks and insurers as well as UK-incorporated parent companies of such institutions. The regulator has listed a total of 29 companies affected by the measure.

Failure to comply with the new rules will be considered to be market abuse by the regulator. The FSA says it is ready to extend this approach to other sectors if it judges it to be necessary.

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

‘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,’ says FSA chief executive Hector Sants.

‘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, have been published by the FSA on its web site.