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FCA explains stance on short selling

Buy-SellThe Financial Conduct Authority (FCA) says it is monitoring short selling but has spoken about the regulator’s decision not to ban it.

“A great many investment and risk management strategies rely on the ability to take long and short positions. These benefit a wide range of ordinary investors including the pension funds for employees of companies and local government,” the regulator said.

Last week, the French regulator AMF issued a short selling ban on all shares traded in Paris for a month. Belgium, Spain and Austria have done the same and in Italy the ban applies for three months.

Aggregate net short selling activity reported to the FCA is low as a percentage of total market activity and has decreased in recent days. It will continue to fluctuate, says the FCA, but there is “no evidence” that short selling has been the driver of recent market falls.

“We also note that short selling is a critical underpinning of liquidity provision. The loss of these benefits would need to be carefully balanced before determining that any intervention to prevent short selling was appropriate.”

Markets have “continued to operate in an orderly fashion” in the UK, said the regulator and although some European countries have introduced short selling bans, most European regulators have not and nor has the United States or any other major financial market.

The German investment funds association BVI said recently it was “firmly opposed to a general ban on short selling in the EU as “currently demanded by some regulators and market participants”.

“A general pan-EU ban on short-selling for securities traded in the EU only makes sense selectively for certain companies and sectors and even then its effectiveness is doubtful,' said Thomas Richter, chief executive of the BVI. The current fall in stock market prices has fundamental causes and “covered short selling is not speculation”, he added.

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