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Sunday 21st of September 2008
September 19, 2008

FSA announces temporary ban on short-selling in financial stocks


by Kay Murchie
”FSA

The FTSE 100 index gained 338 points (7%) in early trading today after the Financial Services Authority (FSA) announced a temporary ban on short-selling in financial stocks.

Banking stocks, which have suffered heavily this week due to the collapse of US investment bank, Lehman Brothers, rose following the news with RBS up 42%, HBOS up 36%, Lloyds TSB up 33%, and Barclays up 27%.

Short-selling is when an investor borrows company stock owned by another investor, then sells the shares in the market, hoping the price will drop. They then buy the shares back at a lower price.

The temporary ban on short-selling applies to 29 financial stocks: Admiral, Alliance & Leicester, Alliance Trust, Arbuthnot, Aviva, Barclays, Bradford & Bingley, Brit Insurance, Chesnara, European Islamic Investment Bank, Friends Provident, HBOS, Highway Insurance, HSBC, Islamic Bank of Britain, Just Retirement Holdings, Legal & General, Lloyds TSB, London Scottish, Novae, Old Mutual, Prudential, Resolution, RBS Group, RSA Insurance, St James’s Place, Standard Chartered, Standard Life and Tawa.

Short-sellers have been blamed for this week’s chaos in the City and are set to lose hundreds of millions of pounds after the City regulator banned the practice until 16 January 2009.

Commenting on the ban, FSA chief executive, Hector Sants, said short-selling is still regarded as a legitimate investment technique in normal market conditions but the current extreme circumstances have given rise to disorderly markets.

Meanwhile, global shares have received a much-needed boost after reports of a proposal by the US Government to deal with the financial crisis.

Henry Paulson, US Treasury Secretary, and Ben Bernanke, chairman of the Federal Reserve, are investigating the possibility of setting up a repository for bad bank, according to a report by CNBC.

CNBC added that Mr Paulson is examining the possibility of establishing something similar to the Resolution Trust Corp, which was created after savings and loans banks collapsed in the 1980s.

It is understood that Paulson and Bernanke are to meet with US officials to discuss ways out of the crisis.

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