Outside the FSA's power

Author: | Published: 17 Nov 2008

Extraordinary market conditions demand not only decisive but also effective actions by financial regulators. So was the FSA's ban on UK short selling, introduced without notice or consultation, an effective regulatory response or a measure more concerned with public opinion?

A gulf exists between the views of market professionals and the general public on the merits of short selling. Professionals know that short selling promotes trading liquidity and the correction of false (over-valued) market prices. The public consider that selling securities you do not own is the cause of price falls and the odious practice of spivs and speculators who seek to profit from the misfortune of others. Regulators and lawyers will agree, though, that short selling can be associated with market abuse when false rumours are spread or a group of sellers deliberately conspires to dump stock, and that short selling in these circumstances is illegal.

Short selling doesn't...