FSA announces end to short-selling ban but plans to extend disclosure regime

Date: Wednesday, January 7, 2009
Author: Financial Services Authority

The Financial Services Authority has announced that it is not proposing to renew its ban on the short-selling of the stocks of UK financial sector companies, which is due to expire on January 16, but it plans to maintain its requirement to significant net short positions until mid-year.

The UK financial regulator says that its proposal to extend its temporary disclosure regime for significant net short positions in financial sector stocks until June 30 will reduce the potential for abusive behaviour and disorderly markets.

Although the rule barring shorting of these stocks that came into force on September 18 last year will be lifted, the FSA says it is prepared to reintroduce the ban without consultation if necessary.

The FSA proposes to make one change to the disclosure regime, which was introduced on September 23. Currently a disclosure must be made if a net short position exceeds 0.25 per cent of the issued shared capital of a company covered by the regime, with further disclosures required if there are any changes in the position.

Under the new proposals, further disclosures would only be required at 0.1 per cent thresholds, that is, as a net short position reached 0.35 per cent, 0.45 per cent and so on.

'We believe that these proposals are the right measures for maintaining orderly markets,' says Sally Dewar, the FSA's managing director for wholesale and institutional 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 measures now cover a total of 34 companies: Aberdeen Asset Management, Admiral Group, Alliance & Leicester, Alliance Trust, Arbuthnot Banking Group, Aviva, Barclays, Brit Insurance Holdings, Chesnara, Close Brothers Group, European Islamic Investment Bank, F&C Asset Management, Friends Provident, HBOS, Highway Insurance Group, HSBC Holdings, Investec, Islamic Bank of Britain, Just Retirement Holdings, Legal & General Group, Lloyds TSB Group, London Scottish Bank, Novae Group, Old Mutual, Provident Financial, Prudential, Rathbone Brothers, Royal Bank of Scotland Group, RSA Insurance Group, Schroders, St James's Place, Standard Chartered, Standard Life and Tawa.

Consultation on the new proposals will close on Friday to enable the measures to take effect at the expiry of the existing ones on January 16. The FSA plans to publish a separate consultation paper within a month setting out its proposals for a longer-term short-selling regime.