If the FSA's intention in forcing disclosure of short positions was to rescue the HBOS rights issue, it hasn't worked. The issue was again under water yesterday after negative brokers' comment caused the share price to take another pounding.
The FSA's action proved only a short-term palliative. Assuming the underwriters stay the course, HBOS will still get its £4bn, but if they are left with the shares, it will also create a considerable overhang of unwanted stock which will depress the share price for months to come.
Introducing new rules in the midst of a crisis nearly always makes for bad policy, though as I have argued before, the need for a greater degree of disclosure around short-selling hedge funds is urgent. I've yet to speak to anyone outside the hedge-fund industry who thinks short selling should remain veiled in secrecy.
Yet once you begin fiddling with the regulations, it's like pulling on a piece of string: you never know where the end is going to be. In order properly to address the problem of short-selling hedge funds, restrictions need to be placed on stock lending.
With luck, the industry can be persuaded to do this voluntarily. It has never been obvious what benefit stock lending brings to clients of the long-only fund managers that engage in it. All fund managers need to re-examine their practice and principles in this area.
In the meantime, the new disclosure rules will at least expose for all to see those recklessly playing roulette with our savings, livelihoods, and the health of our banking system.Reuse content