FSA to Reveal More on Short Selling Plans

The UK's financial regulator is preparing to publish further details of its new proposals for improving transparency in the City.

Under the terms of the new rules from the Financial Services Authority (FSA), traders buying up more than 0.25 per cent of a company's stock in order to "short sell" it will have to make their position public if the firm in question is undergoing a rights issue, or a sale of new shares, at the time.

Fuller details of these requirements are scheduled to be published this Friday, the Guardian reports.

Short selling occurs when a trader borrows stock in a company from investors, sells the shares on the stock market, and then buys them back. The practice effectively functions as a bet that the shares will fall in value, as the trader makes a profit if this occurs. Large numbers of investors "shorting" shares in this way therefore forms a key measure of negative sentiment in a particular company, and puts downwards pressure on share prices.

The FSA made the move following a dip on the market from Britain's biggest lender HBOS, currently preparing a new share sale, whose value of stock fell below the 275p-per-share rights issue price last week.