FSA rejects ban on shorting as Europe's critics warn of dangers

The Financial Services Authority yesterday rejected the shock bans on short-selling financial stocks imposed by France and other European countries in a bid to quell market turmoil.

The watchdog believes falls in UK bank shares last week were caused by traditional long investors selling shares and not pressure exerted by short-sellers. As a result, the FSA yesterday ruled out joining France, Italy, Spain and Belgium, which announced on Thursday night they were outlawing shorting temporarily.

The FSA said: "We have an existing short-selling disclosure regime around financial stocks in place and we continue to monitor the activity in our markets accordingly. We have no current plans to introduce a short-selling ban."

Andrew Shrimpton, the FSA's head of hedge funds until 2007, said the regulator had learnt from the ineffectiveness of a ban that it did choose to implement during the credit crunch three years ago.

Mr Shrimpton, now a partner at the asset management consultants Kinetic, said: "We had looked at bringing in short-selling disclosures or bans before but we decided against it. In 2008 the political pressure became too great but the ban didn't work.

"You take liquidity out of the market if you can't short and an illiquid stock is more volatile than a liquid stock."

Short-sellers, usually hedge funds, borrow shares they do not own and sell them expecting the price to fall so they can buy them back more cheaply at a profit. Supporters of bans say that in fearful markets, short positions become self-fulfilling as traders spread scare stories to push down prices.

European bank shares rose yesterday on relief about the bans after a week of wild trading that saw the French banking giant Societé Generale tumble 15 per cent in one day.

SocGen was at the centre of fears about banks' exposures to troubled sovereign debt and lack of short-term funding that threatened to create a vicious downward spiral in confidence.

Shares in SocGen and Italy's Unicredit, which also suffered in Wednesday's rout, both rose 5.6 per cent.

Barclays was the biggest UK gainer, up by 5.3 per cent, while the FTSE 100 rose by 3 per cent. Markets in Europe also made gains. Still, market watchers said that the rushed bans would prove ineffective or make financial shares more volatile.

Barclays Capital analysts said: "European bank stocks, while bouncing back after a knee-jerk response in September 2008 when a short-selling ban was announced, dropped sharply over the next few months as the financial and economic crisis worsened."

Richard Small, a lawyer at Ashurst, said clients were scrambling to understand the different measures.

"Confusion is the best word I would use and that isn't good for the market. There is a question over harmonisation because, as usual, Europe is supposed to act as one and [the regulator] ESMA is eventually meant to harmonise everything but it's not able to yet."

French economy grinds to a standstill

*France's financial woes got even worse yesterday with official data showing that the country's economy has ground to a halt.

French economists had expected Insee, the State statistics agency, to announce GDP growth of 0.2 per cent for the three months to the end of June. But it said that the French economy had produced no growth at all over the quarter, with industrial production contracting sharply and consumer spending slowing.

François Baroin, the country's finance minister, said the disappointing figures partly reflected the shocks caused by Japan's earthquake and the Arab Spring. He insisted France would still hit its 2 per cent growth target this year,rising to 2.55 per cent in 2012.

However, economists warned those targets looked ambitious and also questioned whether France would now be able to meet its pledge to bring its deficit down to 3 per cent of GDP in 2013. Such worries will add to the speculation that France could be next to lose its AAA credit rating, which caused so much damage on the markets last week.

Life and Style
“What is it like being a girl?” was the question on the lips of one inquisitive Reddit user this week
News
peopleDave Legeno, the actor who played werewolf Fenrir Greyback in the Harry Potter films, has died
Arts and Entertainment
Armando Iannucci, the creator of 'The Thick of It' says he has
tvArmando Iannucci to concentrate on US show Veep
Life and Style
beauty
PROMOTED VIDEO
Sport
Luis Suarez looks towards the crowd during the 2-1 victory over England
transfers
Life and Style
Swimsuit, £245, by Agent Provocateur
fashion

Diving in at the deep end is no excuse for shirking the style stakes

Sport
German supporters (left) and Argentina fans
world cup 2014Final gives England fans a choice between to old enemies
Arts and Entertainment
A still from the worldwide Dawn of the Planet of the Apes trailer debut
film
News
peopleMario Balotelli poses with 'shotgun' in controversial Instagram pic
News
A mugshot of Ian Watkins released by South Wales Police following his guilty pleas
peopleBandmates open up about abuse
Sport
Basketball superstar LeBron James gets into his stride for the Cleveland Cavaliers
sportNBA superstar announces decision to return to Cleveland Cavaliers
Sport
Javier Mascherano of Argentina tackles Arjen Robben of the Netherlands as he attempts a shot
world cup 2014
Arts and Entertainment
The successful ITV drama Broadchurch starring David Tenant and Olivia Coleman came to an end tonight
tv
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Sport
Four ski officials in Slovenia have been suspended following allegations of results rigging
sportFour Slovenian officials suspended after allegations they helped violinist get slalom place
News
14 March 2011: George Clooney testifies before the Senate Foreign Relations Committee during a hearing titled 'Sudan and South Sudan: Independence and Insecurity.' Clooney is co-founder of the Satellite Sentinel Project which uses private satellites to collect evidence of crimes against civilian populations in Sudan
people
Arts and Entertainment
Balaban is indirectly responsible for the existence of Downton Abbey, having first discovered Julian Fellowes' talents as a screenwriter
tvCast members told to lose weight after snacking on set
Life and Style
More than half of young adults have engaged in 'unwanted but consensual sexting with a committed partner,' according to research
tech
Life and Style
A binge is classed as four or more alcoholic drinks for women and five or more for men, consumed over a roughly two-hour period
tech
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

BC2

£50000 - £70000 per annum: Harrington Starr: Business Analyst Consultant (Fina...

Programme Support, Coms, Bristol, £300-350p/d

£300 - £350 per day + competitive: Orgtel: My client, a leading bank, is curre...

(Junior) IT Systems Administrator / Infrastructure Analyst

£28000 - £32000 per annum + pension, 25 days holiday: Ashdown Group: A highly ...

Finance Officer

Negotiable: Randstad Education Birmingham: Randstad Education are seeking a Fi...

Day In a Page

A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

A History of the First World War in 100 Moments

Peace without magnanimity - the summit in a railway siding that ended the fighting
Scottish independence: How the Commonwealth Games could swing the vote

Scottish independence: How the Commonwealth Games could swing the vote

In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport
Out in the cold: A writer spends a night on the streets and hears the stories of the homeless

A writer spends a night on the streets

Rough sleepers - the homeless, the destitute and the drunk - exist in every city. Will Nicoll meets those whose luck has run out
Striking new stations, high-speed links and (whisper it) better services - the UK's railways are entering a new golden age

UK's railways are entering a new golden age

New stations are opening across the country and our railways appear to be entering an era not seen in Britain since the early 1950s
Conchita Wurst becomes a 'bride' on the Paris catwalk - and proves there is life after Eurovision

Conchita becomes a 'bride' on Paris catwalk

Alexander Fury salutes the Eurovision Song Contest winner's latest triumph
Pétanque World Championship in Marseilles hit by

Pétanque 'world cup' hit by death threats

This year's most acrimonious sporting event took place in France, not Brazil. How did pétanque get so passionate?
Whelks are healthy, versatile and sustainable - so why did we stop eating them in the UK?

Why did we stop eating whelks?

Whelks were the Victorian equivalent of the donor kebab and our stocks are abundant. So why do we now export them all to the Far East?
10 best women's sunglasses

In the shade: 10 best women's sunglasses

From luxury bespoke eyewear to fun festival sunnies, we round up the shades to be seen in this summer
Germany vs Argentina World Cup 2014: Lionel Messi? Javier Mascherano is key for Argentina...

World Cup final: Messi? Mascherano is key for Argentina...

No 10 is always centre of attention but Barça team-mate is just as crucial to finalists’ hopes
Siobhan-Marie O’Connor: Swimmer knows she needs Glasgow joy on road to Rio

Siobhan-Marie O’Connor: Swimmer needs Glasgow joy on road to Rio

18-year-old says this month’s Commonwealth Games are a key staging post in her career before time slips away
The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice