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Anger at ban on short-selling as shares rocket up
Nick Goodway, Evening Standard19.09.08
Confusion reigned in the City today after an emergency move to ban short-selling was launched by the Financial Services Authority last night.
Leading banks and financial institutions' shares rocketed by as much as 90% at the opening in a buyers-only market.
“It's a reverse bloodbath,” said Tom Hougaard of spread-betting firm City Index. “Market-makers now have carte blanche to murder any short positions in banks.”
Andrew Baker, who speaks for the hedge fund industry which is largely seen as the villain of the piece in short-selling, said: “These are inappropriate measures that will make life very difficult. Without shorting you have a less efficient market.”
Ian Morley, chairman of hedge fund Corazon Capital, said: “Blaming short sellers is sort of ridiculous. You may as well try to regulate away human nature.”
Julian Jessops of Capital Economics said: “This is just a sideshow and in any case the horse has already bolted.”
The list of 29 companies in which short-selling has been banned was published by the FSA today.
The watchdog rushed out new rules last night to try to stop what it now considers to be market abuse by unscrupulous investors who bet on share prices falling.
The new rules prevent anyone building a new or increasing an existing short position in the named companies for the next four months. It has been claimed that short-selling was behind this week's collapse in the share price of HBOS, forcing it into a £12 billion takeover by Lloyds TSB. But in fact it turns out that less than 3.5% of HBOS could have been shorted this week.
The list includes the main banks, major insurance companies and tiny firms of whom few will have heard.
However, it excludes many financial services companies, including the London Stock Exchange, Icap and Close Brothers.
LSE shares were among the biggest risers today, and are also the most heavily shorted shares.
David Buik of BGC Partners said: “The large financial institutions on the list make sense. But there are plenty of companies on it which have had absolutely nothing to do with the current market turmoil.”
Reader views (1)
Less efficient market? why does stopping short sales slow efficiency? Looking at it from a shareholder point of view short positions held by large firms or hedge funds can drive prices any way they want. Fair? To you maybe, not us. I agree sell keeps stocks in check but is is essential to keep regulations in tact even at the expense of volatility.
LSE among the biggest shorted? Well duh. How stupid do you think the public is. It makes sense if a company has a rally it's gonna fall, especially when ssell are legal. Not against ssell, just against abuse, as in nss and ftds. And I'm tired of financial advisers that talk with authority like they know ( and I'm sure they do) and teach the public a bunch of falsehoods. I've been tracking corruption in the market place for years and found it starts with the biggest and most powerful and held up with people like Christopher Cox who will not regulate the market place properly because he(SEC) gets revenue from each trade which had a budget deficit this year. Of course he plans to escape soon cause he sees a sinking ship. And he will leave with immunity. He should be tried for treason. This fall was predicted 6 years ago with all the reasons why. It's complicated. You need a crew working 24/7 for years to get to the bottom of the problems and some one that spends everyday in an office writing about how much they know steps in to figure out the failures in a few short weeks has not a clue what he is in for. Ftds are passed to others
- Dennis Rose, eureka, ca, USA
