One would have thought that the Financial Services Authority's proposal yesterday not to renew its ban on the short selling of UK financial sector stocks would be welcomed by hedge fund managers, who have campaigned vigorously against the measure since it was introduced last September.
But the regulator's statement doused any euphoria it might have generated - the lifting of the ban was considered far from a foregone conclusion - when the FSA added that it was prepared to reintroduce the ban, which is now set to expire on January 16, without consultation if need be.
The FSA also plans to extend its disclosure regime for significant net short positions in UK financial sector stocks until June 30, in the hope of reducing the potential for 'abusive behaviour and disorderly markets'.
One concession to short sellers is that whereas up to now disclosure has been required once a net short position exceeds 0.25 per cent of a relevant firm's issued shared capital and at every subsequent change in that position, the new proposals limit further disclosures to when net short positions pass thresholds of an additional 10 basis points.
Do the FSA's proposals mean that if a particular financial stock - like a high-street bank, for instance? - slumps in the market, short selling (and hedge funds) will be blamed and the ban will come into force again? This is the issue that fund managers and other short-sellers must consider when deciding whether to take advantage of their newly-regained freedom.
The FSA plans to publish a separate consultation paper within a month, setting out its proposals for a longer-term short selling regime. Hopefully it will contain concrete and pragmatic measures, but the suspicion must be that the sword of Damocles will hang over short-sellers for quite a while yet.