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FSA to end short selling ban

The Financial Services Authority has announced it will not be renewing its ban on short selling of financial stocks.

The FSA says it will not renew the ban which expires on January 16 but is prepared to reintroduce it without consultation if necessary.

Under proposals issued today, the FSA will extend the temporary disclosure regime for significant net short positions in the stocks of UK financial sector companies until 30 June 2009.

Currently a disclosure must be made if a net short position exceeds 0.25 per cent of a relevant firm’s issued shared capital, with further disclosures required if there are any changes in the position. The FSA has proposed to reduce disclosure obligations to apply at 0.1 per cent bands.

The FSA’s consultation will close on January 9 to enable new measures to be in place by January 16. It also intends to publish a separate consultation paper within a month, setting out proposals for the longer-term short selling regime.

FSA wholesale and institutional markets managing director Sally Dewar says: “We believe that these proposals are the right measures for maintaining orderly markets. Continuing the disclosure obligations as we propose will reduce the potential for abusive behaviour and disorderly markets. In addition, we will not hesitate to reinstate the ban if necessary”.

Liberal Democrat Shadow Chancellor Vince Cable says: “This is potentially a very worrying development. The FSA doesn’t seem to have grasped the central point that banks are different from other companies because they involve systemic risk.

“If short selling results in a wave of panic such that banks go down then the practical consequence is that taxpayers will have to assume responsibility.”


Farewell and good luck

Sadly, this is my last article for Money Marketing. I have written in every issue since the newspaper was launched 23 years ago. Over the years, most of my recommendations have shown positive returns but last year was my annus horribilis.

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