FSA step into short selling saga
The Financial Services Authority (FSA) has today indicated they are willing to look at an extension of the ban on short selling which could incorporate all shares on the UK market. The blanket ban on short selling is seen by many as a knee-jerk reaction and the result of a witch-hunt against investors and investment companies in the city. What exactly will a short selling ban achieve?
As we have covered on a number of occasions, short selling has been blamed for the volatile nature of the banking sector in particular over the last few months. Rumours and counter rumours seem to have "grown arms and legs" and before companies have time to react many people are assuming these rumours are fact. While there's no doubt that short selling on a large scale can impact upon a share price it is the underlying lack of information, or an information vacuum, which allows such situations to grow and impact more heavily on the share price.
If the UK banking sector was aware of potential difficulties, bad debts or funding issues many investors believe they should be telling the market as soon as possible rather than staying quiet and potentially making the situation worse.
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