AIMA Has Doubts On Short Selling Bans

Date: Monday, September 22, 2008

The Alternative Investment Management Association (AIMA) has expressed its doubts over whether the recent bans on short selling of financial stocks taken by financial regulators - the FSA and the Securities and Exchange Commission (SEC) - are likely to achieve the intended results over time.

AIMA believe that the measures have the potential to create several unfortunate consequences, including an increase in the cost of capital for banks, at a time when it is most needed and incorrect pricing of index products, with negative implications for mainstream retail products.

AIMA agreed with the acknowledgement by the government and financial regulators that short selling is a legitimate component of orderly financial markets, and not to be confused with market abuse.

In the release, AIMA said that they regret that the latest rules banning short selling were implemented without notice or consultation. However they said they welcome the temporary nature of the Financial Services Authority's (FSA) measure and calls for the earliest possible review of its efficacy.

In the meantime, the association will provide whatever support is needed to its members to ensure smooth implementation of the new rules.

Florence Lombard, Chief Executive of AIMA said: "We strongly support any measures put forward by regulators and policy makers that will bring equilibrium to financial markets. It is our position, however, that banning short selling of financial stocks, while it may indeed bring temporary relief, creates an artificial market. It will not ultimately, on its own, bring back investor confidence in the banking system.