FSA must take the long view on short sellers

The plan to force those shorting shares to disclose their dastardly plans once the stake goes above 0.25% of any company that is engaged in a rights issue didn't make that much sense on the surface, and criticism from all quarters duly followed.

Yesterday, the financial community awoke to find that Treasury officials were already backing away.

Chancellor Alistair Darling, playing the Mayor in Jaws, will soon confirm that these rules are intended to be temporary - the beaches will be shut for only a little while.

Hector Sants, the FSA boss playing Chief Brodie, insists the sharks are out there and that we must all be protected-from them (hint: if you are that worried, don't go into the water).

The admission from the Treasury that it is willing for the new short-selling disclosure rules to be short-term rather gives the game away that this was all devised to aid one panicky bank whose shares were falling below the price of its rights issue.

It wasn't an attempt to make markets more efficient, since they were clearly already rather too efficient for the liking of bank chief executives.

The meddling earnt a rally in the HBOS share price - for one day at least. The FSA is steadfastly against market manipulation, unless it's the one doing the manipulating.

It seems unlikely that bank bosses will complain about investors who go long during the next bull market, which means they shouldn't be listened to when they moan about those who go short during the bear times.

The investors who have been negative on HBOS shares in the last few months - the shorts and otherwise - have been proved right.

That's a rather odd thing to be punishing and in fact the authorities won't catch the people they think they are after in any case.

I asked one of those supposed rogue traders - the type the FSA is always complaining about but can never seem to nail - if these rules would make any difference to his operation.

No, he said, because he still won't have to declare the stake until a day after his work is done.

If he wanted to destabilise a share price - only manageable if the company itself is unstable - he would have been into the market and nipped out again long before the paperwork was required.

It does seem reasonable that the rules governing disclosure should be the same whether the investor is going long or short.

Why not make it that a stake either way should be disclosable at 3% or maybe at 1% during a crisis. At a measly

0.25%, we can expect much more paperwork, none of which may help make sense of anything.

More detailed information is already available in any case - Data Explorers has reams of it, and invites the FSA to ask (and pay).

Armed with proper evidence, the FSA could present the case that our stock markets are victims of abuse.

Rather than get into this, the FSA has preferred to do the bidding of the banks that pay a chunk of its fees.

On the way, it hoped to pick up cheap popularity from investors who think shares - especially ones they own - should never go down. It seems a strange way to regulate a market that prides itself on being free.