Short-sellers face disclosure rules

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The Financial Services Authority (FSA) has ordered those "short-selling" more than 0.25% of shares in banks and insurers to tell the wider market on a daily basis.

Short-selling is when investors borrow stock in a company to sell it - hoping to buy it back more cheaply later and return it, pocketing the difference as profit.

The City's watchdog slapped a temporary ban on the practice for 33 financial stocks last Thursday due to the "disorderly" market conditions.

The new disclosure requirements - in force until January 16 - were also announced by the FSA in its short-selling crackdown to ensure market transparency. It will review the arrangements after 30 days.

Figures from research firm Dataexplorers.com showed that banking giant Barclays was the most "shorted" financial company at the close of business last Wednesday, with 5.2% of its stock on loan.

Halifax Bank of Scotland - whose shares fluctuated wildly last week before its £12.2 billion takeover by Lloyds TSB - had just 3% of its shares shorted despite accusations from politicians over "spivs and speculators" forcing it into a deal.

Chancellor Alistair Darling told the Labour Party conference that the temporary ban on shorting was the right move "to help bring calm back to the markets".

"Short-selling is not the prime cause of the present financial turmoil. But it has made it far worse in recent weeks by undermining confidence in financial companies," he said.

The FSA believes short-selling is a legitimate investment strategy in "normal" market conditions but the moves, also introduced in the US, came as a response to extreme circumstances.