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Stock Exchange to tackle problem of short selling

THE STOCK Exchange will later this month issue a consultative document on the problems that arise from 'short selling', the speculative selling of shares the vendor does not own.

This move comes amid a crisis of short-selling and arbitrage dealings between the markets in London and Paris in Euro Disney shares. The Euro Disney shortage has been exacerbated by the absence of large institutional shareholders in the company. Stock is often borrowed by dealers from institutions to close short positions.

A spokeswoman for the Exchange said the timing of the document and the Euro Disney situation were coincidental, although it did help to highlight the problem.

When it is not possible to borrow stock, the Exchange itself moves in to resolve the problem through a procedure called buying-in. This is aimed at ensuring that shares that have not been delivered by the settlement date reach buyers as soon as possible.

The action involves the Exchange asking a broker to try to buy stock by bidding up on the prevailing price. Any monetary difference has to be paid for by whoever shorted the stock.

Hundreds of buying-in orders on Euro Disney are said to have been issued in the last couple of months. The Exchange said it hoped the backlog would be cleared by the higher availability of shares after Euro Disney's recent rights issue.