The FSA says it is in discussions with the Chancellor on the issue of short-selling after Vince Cable today claimed the practice was "wrecking" banks' rights issues.
A spokesperson for the financial regulator says it has already moved to ensure investors disclose their short positions and admits abandoning short-selling on banks altogether is a possibility.
The Shadow Chancellor of the Liberal Democrats today called for the FSA to step in to stop the short-selling of bank shares following the collapse in value of HBOS stocks in the last 24 hours.
Speaking at his party’s conference in Bournemouth today, Cable says that, in the case of HBOS, hedge funds have an advantage over the taxpayer because they know the Government would step in to help a leading British bank if it collapsed.
Shares in the Halifax Bank of Scotland had fallen 63p, or more than 27%, to 169.5p by 1.30pm, on fears surrounding its apparent dependence on funding from capital markets.
“Speculation is a normal part of trading in shares, but on this occasion the hedge funds are betting against the taxpayer, since they know that if a leading British bank were to collapse, the Government would have no alternative but to intervene,” Cable says.
“The FSA has intervened before to stop hedge funds wrecking rights issues for the banks. They must step in now.”
The FSA says it is working with the Chancellor on the issue of short-selling, adding it has already introduced a rule requiring hedge funds to disclose their short positions.
“We are working with the Chancellor on what changes need to be made on how rights issues are carried out, and that will include short selling,” a spokesperson says.
In March the FSA began an inquiry into what it called “malicious” rumours about an unnamed firm - later revealed as HBOS – alleging short sellers were deliberately trashing shares in the bank to profit illegally from its falling price. But the inquiry was closed due to lack of evidence in August.
Two months previously, in June, the financial regulator also said investors with significant short positions in companies issuing rights will have to reveal those positions.
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