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Short-selling can be as damaging as insider trading

In simple terms, the criminal offence of insider dealing is the buying of shares on the basis of confidential information not yet released to the market at large that is highly likely to result in a significant increase in the value of those shares once it has been released.

Speculative short-selling is the selling of shares with the specific intent of undermining their perceived value in the marketplace and then buying them back shortly for less than what they have been sold for only a week or two earlier.

This results in a quick profit and damages the market by distorting it in a quite unnatural manner.

If the scale of such practices is sufficiently great, the effect can even be damage to the stability of the national economy. Questions:

  • How can speculative short-selling not be a criminal offence of almost equal magnitude to that of insider dealing?

  • Why has it taken the FSA so long to do anything about it, as usual, locking the barn door after the horse has bolted?

    Julian Stevens

    Harvest IFM, Bristol

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