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Investors cheer shorting ban

Interactive Investor – Investors are cheering the temporary ban on shorting financial stocks which came into play on Friday morning.

The Financial Services Authority introduced the four-month freeze on profiteering from falling share prices after the markets closed last night in a bid to stem the chaos in the financial sector. The new rules, which cover 29 shares, prevent investors from taking out new short positions or adding to existing ones in all publically listed financial firms.

Investors currently shorting more than 0.25% of a financial company’s shares have until Tuesday to either close their position or declare it to the regulator.

Short-sellers have been blamed for sending share prices in the financial sector plummeting in recent weeks with HBOS the latest victim of speculators looking to make a quick buck from its demise.

Hector Sants, chief executive of the Financial Services Authority, says: "While we still regard short-selling as a legitimate investment technique in normal market conditions, the current extreme circumstances have given rise to disorderly markets. As a result, we have taken this decisive action, after careful consideration, to protect the fundamental integrity and quality of markets and to guard against further instability in the financial sector."

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