FSA action on short selling supports HBOS share price

by Gill Montia

Story link: FSA action on short selling supports HBOS share price

The Financial Services Authority (FSA) has published new rules on “short selling”.

The practice, whereby traders profit from falling share prices, has been blamed for some of this week’s fall in the value of HBOS stock, prior to its rights issue.

HBOS needs to raise £4 billion from shareholders but the fundraising has been in jeopardy this week, as the bank’s share price fell to below the issue price of 275p.

From Friday of next week, the FSA will require “short sellers” to disclose their dealing regarding companies that are in the process of a rights issue.

The FSA has pointed out that while short selling is a legitimate process, it can create a severe level of volatility in the shares of companies that have embarked on rights issues and in doing so reduces confidence in the UK market.

When the new measures are introduced on 20th June, traders selling “short” will be required to disclose positions exceeding certain set thresholds to the market on the next business day.

Following this morning’s statement by the FSA, HBOS shares recovered to 320.5p by midday.