FSA attacks speculators

The government has taken urgent action against short-selling in a new blitz on financial greed, just a day after politics.co.uk reported an upsurge in high-level irritation at speculators.

The Financial Services Authority (FSA) banned the practise from midnight last night after financial commentators noted the effect of short-selling on HBOS’s quick-fire deterioration over the course of the week.

The signs were that strong action would be taken yesterday after Gordon brown rallied against City greed, saying: “We will deal with some of the problems that have arisen because of irresponsible behaviour.

“We have got to clean up the financial system.”

The FSA’s chief, Hector Sants, said: “We have taken this decisive action … to protect the fundamental integrity and quality of the markets and guard against further instability in the financial sector.”

The action currently applies only to financial stocks, but the FSA is open to expanding it to other sectors “if it judges it necessary”.

The US financial regulator also banned the practise at around 11:00 BST this morning.

Short-selling involves traders borrowing shares off a long-term investor – usually a pension fund – selling them at a certain price, watching the share price fall, and then buying back the shares. The traders then give the shares back to the original investor and pocket the difference.

The Liberal Democrats welcomed the move.

Liberal Democrat Treasury spokesman Lord Oakeshott said: “The Liberal Democrats welcome this emergency action by the FSA, as called for by Vince Cable.

“Massive short sales of bank shares by hedge funds have made the current crisis far worse.

“The government and FSA must think long and hard before ever allowing short sales of British bank shares again.”

Conservative leader David Cameron pledged to support the government in anything which stabilised the markets.

“Anything the prime minister and the government do to help will have my full support,” he said.

SNP Treasury spokesman Stewart Hosie said: “This is a welcome development which will hopefully drive out the ‘spivs and speculators’ who have brought so much uncertainty to HBOS customers and employees in the past 24 hours.

“Other financial institutions are now safe but for HBOS, I fear the FSA has closed the stable door after the horse has bolted.”

British Bankers’ Association also supported the FSA decision.

“The British Bankers’ Association is pleased the FSA has taken this welcome and sensible action in these current extra-ordinary times,” said chief executive Angela Knight.

Prominent hedge funds taking short positions on UK banks this year include Harbinger Capital, GLG Partners and Lansdowne Partners.

You can read yesterday’s report on the growing pressure for regulation here