A panicky response that may create more problems

The announcement that it wants to clamp down on short selling during rights issues is more than just the usual regulatory tinkering - it's a big deal bound to have scores of unintended consequences.

The FSA concedes that short selling is a "legitimate technique" that assists liquidity and is "not in itself abusive".

But it thinks there's too much of it, and would rather everyone just said nice things about stock market-listed companies.

The stated rationale is to clamp down on "market abuse" a hazy concept that the watchdog thinks is all around us, though it hardly ever catches anyone in the act.

It's hard to see how forcing investors to disclose every short position above 0.25% of a company's stock will help in any case. It terms of stabilising share prices in rights issues, it could even have the opposite effect.

News that Warren Buffett, say, was shorting a tiny percentage of Anycompany shares in a funding crisis would hardly be helpful to the firm's hopes of survival.

The FSA may go further - it is considering banning the lending of shares for short selling during rights issues - in effect preventing any shorting at all.

Does it realise what damage this will cause our pension funds? They lend most of the shares used for shorting, earning themselves millions of pounds in risk-free income each year.

This looks like a rushed, panicky response bound to create new problems even as it fails to solve existing ones. In effect, the FSA is trying to make it harder to sell a share than buy one.

Companies that need this level of protection from the usual rules of trade are probably beyond salvation