Watchdog in short-selling crackdown

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From midnight on Thursday, the Financial Services Authority (FSA) is banning new "short" positions in listed financial companies.

"Short-selling" is when investors borrow stocks in company to sell it - hoping to buy it back at a cheaper price later on and return it, pocketing the difference as profit.

FSA chief executive Hector Sants said: "While we still regard short-selling as a legitimate investment technique in normal market conditions, the current extreme circumstances have given rise to disorderly markets.

"We have taken this decisive action, after careful consideration, to protect the fundamental integrity and quality of markets and to guard against further instability in the financial sector."

Scottish First Minister Alex Salmond earlier hit out at "spivs and speculators" for driving down the share price of Halifax Bank of Scotland, forcing it into a merger with Lloyds TSB.

The ban on the "active creation or increase of net short positions" in publicly-listed financial companies will remain in force until January 16 next year, although the rules will be reviewed after 30 days.

The watchdog will also require all investors "shorting" more than 0.25% of a financial company's shares to reveal their positions next Tuesday.

The move follows a similar crackdown on short-selling by the US Securities and Exchange Commission.