FSA cracks down on short selling

The Financial Services Authority has introduced a new provision to prohibit the shorting of publicly quoted companies from midnight tonight.

On top of this, the FSA says it will require from Tuesday 23 September daily disclosure of all net short positions in excess of 0.25% of the ordinary share capital of the relevant companies held at market close on the previous working day.

Disclosure of such positions held at close on Friday September 19 will also be required on Tuesday September 23.

The FSA stands ready to extend this approach to other sectors if it judges it to be necessary.

These provisions will remain in force until January 16 2009, although they will be reviewed after 30 days. A comprehensive review of the rules on short selling will be published in January.

Hector Sants, chief executive of the FSA, says: “While we still regard short-selling as a legitimate investment technique in normal market conditions, the current extreme circumstances have given rise to disorderly markets.

“As a result, we have taken this decisive action, after careful consideration, to protect the fundamental integrity and quality of markets and to guard against further instability in the financial sector.”

The detailed changes to the Code of Market Conduct, and a schedule of the companies whose securities are covered by them, will be published before the market opens tomorrow (Friday 19 September).