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Killik in call for debate on shorting damage

Private client stockbroker Killik & Co is blaming the proliferation of hedge funds in the UK for playing a key role in the current stockmarket volatility.

Many mainstream fund managers have defected to run their own hedge funds in the last 12 months. Killik says the practice of “shorting”, used by many of the UK&#39s 160 hedge funds, involves selling a stock option and buying it back at a cheaper price to close the deal at a profit. The company claims that shorting is damaging market confidence.

It says “going short”, which is designed to make money on equity declines, contributed to the FTSE 100 index tumbling by 250 points in one day last month and to over £67bn being wiped off the value of companies on the London markets.

Killik believes controls on shorting should be put in place by the London Stock Exchange and that the UK should look to the US where shorting is open to regulation.

The company is not calling for an end to shorting, as the practice helps increase market liquidity, but wants transparency so that investors are aware of the scale and impact of shorting.

Killik senior partner Paul Killik says: “There is a need for a debate on shorting in London as it may damage investor confidence. The FSA should be encouraged to regulate hedge funds to bring them back onshore as they have been driven offshore.”

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