The Financial Services Authority (FSA) banned "short selling" of bank shares from midnight last night, after warnings that the practice helped fuel market turmoil that forced the dramatic £12.2bn takeover of HBOS by Lloyds TSB. This came as the New York Attorney announced his office had launched an investigation into illegal manipulation to profit from short selling. The move is to uncover whether speculators have spread misleading information or acted in concert to purposely drive down share prices. Wealthy hedge fund traders, heavy users of the shorting strategy, have sparked fury after making millions from the collapse in value of UK banking stocks.
The Financial Services Authority (FSA) banned "short selling" of bank shares from midnight last night, after warnings that the practice helped fuel market turmoil that forced the dramatic £12.2bn takeover of HBOS by Lloyds TSB. This came as the New York Attorney announced his office had launched an investigation into illegal manipulation to profit from short selling. The move is to uncover whether speculators have spread misleading information or acted in concert to purposely drive down share prices.
Wealthy hedge fund traders, heavy users of the shorting strategy, have sparked fury after making millions from the collapse in value of UK banking stocks.
But hey, when your only policy is distraction, it's par for the course. In the long run, we're all dead. John Maynard Keynes
Short selling can be simulated at relatively low cost with options and futures. But the SEC and FSA have not banned options or futures on financial stocks.
Also, as the long/short hedge funds all, simultaneously adjust their portfolios to react to the new regulations you're going to see some deleveraging (which, when done by all, simultaneously is a Bad Thing™) and some large sector movements (blowing away the stability of correlation estimates).
It's all for show. A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
