FSA Under Fire Over Short-Selling Rules

New rules on disclosing short positions are having little benefit but have jeopardised the reputation of the Financial Services Authority and damaged Britain's investor friendly standing, The Telegraph reports . The watchdog is coming under fire for rapidly implementing, with

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New rules on disclosing short positions are having little benefit but have jeopardised the reputation of the Financial Services Authority and damaged Britain’s investor-friendly standing, The Telegraph reports .

The watchdog is coming under fire for rapidly implementing, with negligible consultation, rules that force investors to disclose short positions on companies carrying out a rights issue. The International Swaps and Derivatives Association (ISDA) has written to the FSA to voice concerns about the new regulations while leading lawyers and consultants are adding their weight to a growing campaign of discontent.

Richard Spedding, a partner specialising in corporate finance at law firm Travers Smith, says the FSA had jeopardised its previous success in fostering an expectation that it would consult widely before changing regulations. Spedding says “the whole thing smacks of a quick-fix measure” but the authority has failed to demonstrate that the rules will contribute to marketplace certainty.

Using its emergency powers, the FSA gave just one week’s notice that it was introducing the rules on short positions, where investors such as hedge funds sell shares on loan with the hope of buying them back more cheaply later to close their position profitably.

The new rules require investors to declare – by 3.30pm the following day – any short position of 0.25% or more in a company carrying out a tradable rights issue. After the initial disclosure, the position can be closed or extended with no further announcement.

The authority is widely assumed to have implemented the rules, believing they would limit short-selling during rights issues by companies such as HBOS, owner of Halifax and Bank of Scotland, where the share price has fallen below the rights issue price.

The full story is available at the Telegraph.co.uk web-site .

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