You are here: Home - Saving & Banking - News -

FSA announces measures to limit short selling

0
Written by:
19/09/2008

The Financial Services Authority (FSA) has imposed a new rule designed to have a “calming effect” on the market for shares in financial firms.  

Speaking at the Lord Mayor’s City Banquet last night, Callum McCarthy, chairman of the FSA, announced the regulator would require traders to disclose short positions on financial institutions on a daily basis. It will also prohibit any active increase in net short positions on shares in financial services firms. The measures will initially be imposed for 120 days, during which time the FSA will review its overall policy on short selling.

Short-selling involves borrowing the shares of a certain firm from one party to sell to another in the hope that the share price of the firm in question will fall. This will then result in a profit for the short seller when the shares are bought back to return to the original party.

The FSA is concerned that such activities can translate into a drop in confidence among the customers of the banks targeted by short seller. This could then prompt bank customers to withdraw any money they have placed in savings or current accounts, causing a run on the bank, such as was the case for Northern Rock last September.

McCarthy explained: “We have been much concerned – as have many – at the volatility and what I would describe as incoherence in the trading of equities, particularly for financial institutions.

“There is a danger in a trading system which allows financial institutions to be targeted and subject to extreme short selling pressures, because movements in equity prices can be translated into uncertainty in the minds of those who place deposits with those institutions with consequent financial stability issues. We have seen acute examples of this phenomenon in both London and New York this week.”

 

Tagged:

Tag Box

Debt

Pension

Spending

Financial fitness

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Are you a first-time buyer looking for a mortgage?

Look no further, get the help you need by searching for your perfect mortgage

Which ISA is right for you? A round up of the six products available in 2017

From cash to innovative finance to lifetime, here's our guide to the ISA products available to savers this yea...

Guide to buy-to-let tax changes

In late 2015, former Chancellor George Osborne announced a range of  tax measures aimed at landlords, which t...

A guide to switching energy provider

All you need to know about switching from one energy supplier to another.

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Five fund tips for a 0.25% interest rate environment

With interest rates stuck at a record low 0.25% and expectations rates could fall to close to zero, here are ...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Investing your money

Alliance Trust Plc gives you smart insight into how to invest your money

Money Tips of the Week

Read previous post:
Pension deficit soars to £70bn

Turmoil in the equity markets this week has pushed the UK pension deficit up by £20 billion to £70 billion.

Close