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With the financial sector as a whole awaiting a regulatory clampdown following the mayhem of the past 18 months, the UK's Financial Services Authority has unveiled proposals to extend the mandatory disclosure of short positions from financial stocks to the shares of all British listed companies.

Last September the FSA banned the short selling of shares in 34 financial companies. The interdiction expired on January 16, but short sellers of financial stocks are still required to disclose positions exceeding 0.25 per cent of the share capital of the company in question. It is this requirement that the regulator is considering widening to the 3,000-plus stocks traded on UK markets, but with an initial threshold of 0.5 per cent of a company's share capital.

Clearly, this move would be a blow to hedge funds, one of the main users of this investment strategy, and many managers are not happy about it. Tim Steer, a fund manager at New Star, the investment group, described the proposals as ridiculous and counterproductive, and said that everybody would suffer as a result.

The FSA says it is aware of the danger that the decisions of high-profile fund managers will be closely scrutinised and possibly replicated by other market participants. 'This has the potential to turn a downward price spiral into a 'self-fulfilling prophecy',' the regulator acknowledges in its discussion paper, but it believes that on balance the benefits of disclosure obligations outweigh the costs.

The FSA, which says that it would prefer to take action as part of an international consensus, is inviting feedback on its proposals up to May 8. Members of the industry who believe the regulator is going down the wrong path have three months to get their message across.

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