Short-selling ban lifted
Investors will once again be able to short-sell financial shares in the UK from mid January, the Financial Services Authority (FSA) has said.
The temporary six-month short-selling ban on 34 financial stocks is due to expire on 16 January. However, investors with significant short positions will still need to declare them for another six months.
At present they must disclose positions which exceed 0.25% of a specified firm's shares with further announcements being made if there are any changes in the position. The latter rule will, however, be relaxed slightly, requiring investors only to declare changes in their net short positions at 0.1% bands.
Sally Dewar, managing director of wholesale and institutional markets at the FSA, 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".
The ban, introduced back in September, was intended to bring some stability back to the markets after short-selling was blamed for the dramatic fall in banks - including HBOS' - share price.
However, some MPs had been calling to keep the ban in place for a while longer with volatility continuing to effect the stock market, especially bank shares.
Liberal Democrat shadow chancellor Vince Cable says: "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.
"Short selling in most markets has a valid role providing there is effective action by the regulator to deal with market abuse when false rumours are being deliberately circulated. British authorities, unlike the Americans, have been very weak in this area."
The term is interchangeable with stock exchange, and is a market that deals in securities where market forces determine the price of securities traded. Stockmarket can refer to a specific exchange in a specific country (such as the London Stock Exchange) or the combined global stockmarkets as a single entity. The first stockmarket was established in Amsterdam in 1602 and the first British stock exchange was founded in 1698.
Selling of a security (mainly shares) that the trader does not own. The shares are borrowed from a long-term investor (a pension fund), sold into the market and, when the shares fall in price, they are bought back at the lower price and then returned to the lender with a small commission. The short seller’s profit is the difference between the price at which the borrowed shares were sold and the price at which the borrowed shares were bought back.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.