The City of London’s “short-selling” ban and disclosure rules for UK financial stocks will not be lifted early, the City watchdog confirmed today.
The Financial Services Authority (FSA) said that the rules will remain in place until January 16 as planned after being introduced last month to prevent investors from “shorting” banks and insurers and to force those who already had short-selling positions to make daily disclosures.
Short-selling is when investors borrow stock in a company to sell it – hoping to buy it back more cheaply later and return it, pocketing the difference as profit.
The FSA slapped a temporary ban on the practice for 34 financial stocks on September 18, as a result of what it described as “disorderly” market conditions.
Its decision to maintain the disclosure requirements follows a 30 day review. The FSA will publish a more detailed review of short-selling in January.
However, the regulator said it would be making one change to the rules within the next few days by scrapping the daily disclosure requirement.
Firms with existing short positions of more than 0.25% of shares in the 34 stocks covered will only have to make a disclosure as and when the position changes.
While firms cannot take out new shorts, the FSA said it is not able to stop changes being made to increase positions if they are held within wider financial products, although this will need to be disclosed.
The FSA’s American counterpart, the Securities and Exchange Commission, has already lifted its temporary ban on short-selling of financial shares, on October 9.
It had slapped the ban on almost 1,000 financial stocks in mid-September in concert with the FSA and similar moves across Europe.
However, the removal of the US ban was thought to have contributed to a hefty fall on the Dow Jones Industrial Average on Wall Street.
The Dow plunged below 9000 for the first time since 2003 after the move.
The FSA said today that with one exception, it had concluded it should “not make any changes to the measures at this time”.
High street banks such as Halifax Bank of Scotland, Barclays and Royal Bank of Scotland are on the list of 34 stocks, alongside insurers including Norwich Union parent Aviva and investment management groups such as F&C Asset Management and Investec.
HBOS was believed to have been the victim of short-selling, with accusations that “spivs and speculators” had forced its shares down significantly and ultimately led to its rescue takeover by rival Lloyds TSB.
The FSA had previously introduced short-selling disclosure regulations in the summer to help protect banks during the flurry of rights issues taking place at the time.
Many of those seeking to boost their balance sheets saw large movements in share prices, which threatened the rights issues and put smaller investors at risk, according to the FSA.
The lengthy nature of the rights issue process is seen as providing greater scope for possible market abuse during heightened stock market volatility.