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
Cooked up: reducing dietary animal fat might not be as healthy as government advice has led millions of people to believe
healthA look at how governments started advising incorrectly on diets
Neil Warnock
football'New' manager for Crystal Palace
REX/Eye Candy
ebooksAn evocation of the conflict through the eyes of those who lived through it
Roger Federer is greeted by Michael Jordan following his victory over Marinko Matosevic
tennisRoger Federer gets Michael Jordan's applause following tweener shot in win over Marinko Matosevic
peopleJustin Bieber accuses paparazzi of acting 'recklessly' after car crash
Arts and Entertainment
Oppressive atmosphere: the cast of 'Tyrant'
tvIntroducing Tyrant, one of the most hotly anticipated dramas of the year
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Client Services Executive / Account Executive - SW London

£23000 - £26000 per annum: Ashdown Group: Account Executive / Client Services ...

PA to CEO / Executive Secretary

£36000 - £38000 per annum: Ashdown Group: Executive PA to CEO & Executive Dire...

Generalist HR Administrator, Tunbridge Wells, Kent - £28,000.

£25000 - £28000 per annum: Ashdown Group: Generalist HR Administrator - Tunbri...

Management Accountant

£30-35k + Excellent Benefits: Guru Careers: We are seeking a Management Accoun...

Day In a Page

Kate Bush, Hammersmith Apollo music review: A preamble, then a coup de théâtre - and suddenly the long wait felt worth it

Kate Bush shows a voice untroubled by time

A preamble, then a coup de théâtre - and suddenly the long wait felt worth it
Robot sheepdog technology could be used to save people from burning buildings

The science of herding is cracked

Mathematical model would allow robots to be programmed to control crowds and save people from burning buildings
Tyrant: Is the world ready for a Middle Eastern 'Dallas'?

This tyrant doesn’t rule

It’s billed as a Middle Eastern ‘Dallas’, so why does Fox’s new drama have a white British star?
Rachael Lander interview: From strung out to playing strings

From strung out to playing strings

Award-winning cellist Rachael Lander’s career was almost destroyed by the alcohol she drank to fight stage fright. Now she’s playing with Elbow and Ellie Goulding
The science of saturated fat: A big fat surprise about nutrition?

A big fat surprise about nutrition?

The science linking saturated fats to heart disease and other health issues has never been sound. Nina Teicholz looks at how governments started advising incorrectly on diets
Emmys 2014 review: Can they genuinely compete with the Oscars

Can they genuinely compete with the Oscars?

The recent Emmy Awards are certainly glamorous, but they can't beat their movie cousins
On the road to nowhere: A Routemaster trip to remember

On the road to nowhere

A Routemaster trip to remember
Hotel India: Mumbai's Taj Mahal Palace leaves its darker days behind

Hotel India

Mumbai's Taj Mahal Palace leaves its darker days behind
10 best pencil cases

Back to school: 10 best pencil cases

Whether it’s their first day at school, uni or a new project, treat the student in your life to some smart stationery
Arsenal vs Besiktas Champions League qualifier: Gunners know battle with Turks is a season-defining fixture

Arsenal know battle with Besiktas is a season-defining fixture

Arsene Wenger admits his below-strength side will have to improve on last week’s show to pass tough test
Pete Jenson: Athletic Bilbao’s locals-only transfer policy shows success does not need to be bought

Pete Jenson: A Different League

Athletic Bilbao’s locals-only transfer policy shows success does not need to be bought
This guitar riff has been voted greatest of all time

The Greatest Guitar Riff of all time

Whole Lotta Votes from Radio 2 listeners
Britain’s superstar ballerina

Britain’s superstar ballerina

Alicia Markova danced... every night of the week and twice on Saturdays
Berlin's Furrie invasion

Berlin's Furrie invasion

2000 fans attended Eurofeurence
‘It was a tidal wave of terror’

‘It was a tidal wave of terror’

Driven to the edge by postpartum psychosis