by René Lavanchy
THE regulator of Britain’s banking system faces calls to tighten up its rules as it prepares to end a temporary ban on speculating on banks’ share prices falling.
The Financial Services Authority banned the practice of short-selling stock in financial firms last September, amid fears that it was helping to drive down confidence in banks such as HBOS. The ban ends next week.
But Liberal Democrat Treasury spokesperson Vince Cable and Labour Treasury Select Committee chair John McFall say that the current weakness of British banks – and their reluctance to lend – mean ending it is too premature.
Prem Sikka, professor of accounting at the University of Essex, agreed: “It was considered to be a blot on the financial landscape three months ago. Nothing has changed since then. There should be a permanent ban. People are selling something they haven’t got, and by selling they’ll drive the price down”.
Jim Cousins, a member of the Treasury Select Committee, disagreed: “There are whole areas of the financial sector that aren’t regulated at all. We should be going about extending the scope of regulation rather than getting excited about this box of tricks.”
Short-selling involves borrowing shares and selling them on, in the expectation that they can be bought back more cheaply after the share price falls.
Mr Cousins also called for short-sellers’ identities to be made public – a rule which the FSA has also temporarily introduced, and which it is currently considering extending.
