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FSA clamps down on short-selling FSA clamps down on short-selling
(20 minutes later)
The City regulator has announced restrictions on short-selling, whereby traders bet on share prices falling, in a bid to tackle market instability.The City regulator has announced restrictions on short-selling, whereby traders bet on share prices falling, in a bid to tackle market instability.
The Financial Services Authority (FSA) is clamping down on the practice that some believe contributed to the sharp falls in HBOS shares in recent days.The Financial Services Authority (FSA) is clamping down on the practice that some believe contributed to the sharp falls in HBOS shares in recent days.
Some analysts have argued that short-selling had been a factor behind the £12.2bn takeover of HBOS by Lloyds TSB. Some analysts argue that short-selling had been a factor that led to the £12.2bn takeover of HBOS by Lloyds TSB.
The changes will be effective from midnight on Thursday.The changes will be effective from midnight on Thursday.
The restrictions, which will be in force until 16 January 2009, will be reviewed after 30 days.The restrictions, which will be in force until 16 January 2009, will be reviewed after 30 days.
"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," said FSA chief executive Hector Sants."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," said FSA chief executive Hector Sants.
'Financial stability''Financial stability'
Short-selling is a technique that sees investors borrow an asset, such as shares, currencies or oil contracts, from another investor and then sell that asset in the relevant market hoping the price will fall.Short-selling is a technique that sees investors borrow an asset, such as shares, currencies or oil contracts, from another investor and then sell that asset in the relevant market hoping the price will fall.
The aim is to buy back the asset at a lower price and return it to its owner, pocketing the difference.The aim is to buy back the asset at a lower price and return it to its owner, pocketing the difference.
Anyone can short a position in a company's shares, but typically hedge funds are the main players.Anyone can short a position in a company's shares, but typically hedge funds are the main players.
The US financial regulator, the Securities and Exchange Commission (SEC), also announced restrictions on short-selling on Wednesday.The US financial regulator, the Securities and Exchange Commission (SEC), also announced restrictions on short-selling on Wednesday.
Chancellor Alistair Darling welcomed the move by the FSA.Chancellor Alistair Darling welcomed the move by the FSA.
"I have discussed this with the FSA and welcome their decisive action on short selling," Mr Darling said. "I believe it is the right thing to do in the current market conditions and in the interests of financial stability," he said.
"I believe it is the right things to do in the current market conditions and in the interests of financial stability," he said. Markets have fluctuated hugely in recent days, with fundamental changes occurring in the financial landscape.
There are fears that several firms, including Lehman Brothers, which filed for bankruptcy at the start of the week, and insurance giant AIG, which was rescued by the Federal Reserve, were targeted by those short-selling.
Speaking to the BBC, Mr Darling underlined that short-selling was not wrong in itself.
"It can help actually in providing funds, liquidity, for companies."
But he added that it could become a problem where people "deliberately" manipulate a market, making "a difficult situation even worse".
Broader movesBroader moves
It was not only in the UK that attempts were being made to address short-shelling.It was not only in the UK that attempts were being made to address short-shelling.
Later on Thursday New York attorney general Andrew Cuomo said he would start a probe into short-selling.Later on Thursday New York attorney general Andrew Cuomo said he would start a probe into short-selling.
At issue is whether certain traders exploited short-selling to push down stock prices, breaching market rules.At issue is whether certain traders exploited short-selling to push down stock prices, breaching market rules.
There are fears that several firms, including Lehman Brothers, which filed for bankruptcy at the start of the week, and insurance giant AIG, which was rescued by the Federal Reserve, were targeted by those short-selling. New York's state pension funds said it would cease lending stocks in 19 firms to short-sellers on a temporary basis.
And New York's state pension funds said it would cease lending stocks in 19 firms to short-sellers on a temporary basis.