Watchdog seeks to extend short-selling regulations

The City regulator today said that it wants to extend the rules for betting on the share prices of banks and other financial companies falling, when they run out at the end of this month.

Short-selling is when traders borrow shares to sell them in the hope that the price will fall. The shares are then bought back more cheaply, with the difference pocketed as profit.

The FSA brought in first a ban and then the disclosure rules after massive swings in bank share prices in the second half of last year during the credit crunch.

It claimed that short-selling could result in market abuse and distortions.

The watchdog now wants to introduce a broader regime which will require short positions in all companies above 0.5% to be disclosed.

However, this is unlikely to come in until the autumn and the current regime on financial stocks ends on 30 June.

A similar disclosure regime also exists once a company has announced a rights issue requiring punters to reveal short positions above 0.25%.