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FSA to clamp down on shortsellers

The FSA has issued new disclosure requirements to prevent market abuse through short-selling positions in companies conducting rights issues.

The regulator says current market conditions mean there is greater potential for abuse.

New provisions in its code of market conduct will require significant short positions in stocks undertaking rights issues to be disclosed.

The FSA stresses that it does not see short-selling itself as abusive but that rights issues provide greater scope for market abuse and that the transparency of significant short-selling should be improved.

It says short-selling can cause severe volatility in shares which damages the rights issuers and confidence in the UK market.

Investment Management Association director of wholesale Guy Sears says the IMA welcomes the FSA’s move.

He says: “It will no doubt surprise many that the FSA has changed the rules at such short notice and it will cause operational headaches in the short term but that is a price that a few short-sellers and not the FSA have forced on the market in these exceptional times.”

CMS Cameron McKenna financial services partner Simon Morris criticises the FSA for making a major market change without prior consultation.

He says: “In one sentence, the FSA says short-selling is a legitimate technique and in the next claims it could lead to market abuse. The argument is neither consistent nor a thought-through response to a perceived problem.”

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