The FSA is investigating share trading in the UK after concerns were raised that "completely unfounded rumours" were leading to short-selling.
The regulator says it will not tolerate traders or firms taking advantage of the current market conditions to "commit abuse by spreading false rumours and dealing on the back of them".
The term 'short selling', or shorting, describes a strategy enabling an investor to gain from a decline in share or security price.
Reports suggest the Bank of England (BoE) requested the FSA probe following rumours that Halifax Bank of Scotland (HBOS) had approached it for emergency funding, a move denied by both HBOS and the BoE.
As at 3.40pm, shares in HBOS had fallen 32.5p, or 6.77%, to 447.75.
The FSA says it has had a "number of conversations" with the BoE as "some" of the rumours include the Bank. However, it says it keeps a constant eye on the markets and denied today's action was down solely to any BoE-linked rumour.
Sally Dewar, managing director, wholesale and institutional markets, says: “There has been a series of completely unfounded rumours about UK financial institutions in the London market over the last few days, sometimes accompanied by short-selling.
“We will not tolerate market participants taking advantage of the current market conditions to commit abuse by spreading false rumours and dealing on the back of them.
“We remind market participants of the need to take extra care, in this market climate, to adhere to the market code of conduct.”
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