Last night it was reported that the FSA would act to clamp down on “short selling“; the objective obviously being to deter speculative attacks on banks such as those on HBOS that went on for some time before the merger announcement with Lloyds TSB.
Sure enough, well before markets opened this morning, the FSA had already exercised its powers under section 119 of the Financial Services and Markets Act 2000, amending its market abuse code (or to use the FSA’s own non-statutory terminology, its market conduct sourcebook) to state that in the FSA’s view, creating or increasing a short position amounts to market abuse. Market makers are exempted. Here’s the FSA instrument making the change, and here’s a list of FAQs prepared by the FSA.
This now means the FSA will be able to take action against short sellers, imposing penalties on them under section 123 of FSMA.
… And theres me thinking the FSA was toothless…….
… Bolting the stable door comes to mind!
Judicial Review anyone?
The FSA don’t know what they are doing; this is very wrong. It is logically wrong (if you disagree with me, go and short sell a thousand ounces of gold for 50 USD an ounce and see whether or not you’ve managed to manipulate the market), it is morally wrong.
It is silly to try and ossify the legislator’s obvious ignorance of finance in law.
Short selling looks like a fair practice from the outside, and a small trade ( in gold market terms) as quoted by anonymous would not affect the market. However, to short-sell you first have to ‘borrow’ stock, a practice that in itself should have been banned years ago. Robert Maxwell among others kept bankrupt businesses afloat for many years by borrowing shares from third parties – which he often pledged as collateral for further loans with which he bought more companies to use as collateral, etc etc. We all know how that ended, but not before robbing thousands of his employees of their pensions. The stock market is a jittery beast, and I’ve long understood that so-called experts in brokerage houses panic like blind rats on a sinking ship when there’s bad news. Right now it’s all too easy to contribute to a spiral of negative rumour, shorting as you go, and make a pile out of banks and other financial institutions as their share price plummets. Usually the victims are, once again, ordinary folk with pensions, ISA’s etc whose savings become badly damaged, and eventually the taxpayer at large if the institution has to be bailed out by government.
For once the PM and his Chancellor have done something right.