MPs want answers over the role of short selling in recent banking stock volatility.
The decision of the Financial Services Authority (FSA) to end the ban on short-selling last Friday has been implicitly criticised by the head of a powerful MPs' group.
John McFall, chairman of the Treasury Select Committee, wrote to the regulator's chief executive, Hector Sants, to express his concern about the possible role of short sellers in the recent volatility of UK bank stocks on the FTSE 100.
The rout was started last Friday, when shares in Barclays lost around 25 percent of their value in the afternoon, and continued this week. The most dramatic change has been seen in RBS stock, with shares in the bank losing around 65 percent of value on Monday before holding steady on the following two days.
Some observers have drawn a connection between the ending of the short-selling ban and the bank stocks' crash. The practice, also known as "shorting" - which entails a negative bet being taken by an investor on a share's future market performance - was outlawed for some stocks by the FSA last year. The move was made in order to limit the possibility of attacks by speculators driving banks out of business.
"In the light of the extreme market turbulence in bank shares in the week since the ban was lifted, could you please confirm that the FSA is actively monitoring the connection between the volatility in bank shares and the repeal of the ban on short selling," Mr McFall wrote.
"Could you also please confirm that you will not hesitate to re-introduce the ban if it is found that short selling has contributed to the undermining of stability in the banking sector."
Figures from Data Explorers, cited by the Financial Times, suggest that the movement of the Barclays share price on Friday was not caused by shorting, however.
The number of Barclays shares on loan that day was found to have risen from 3.14 to 3.2 percent. This seems to rule out a concerted shorting attack - as the practice of short selling itself involves borrowing shares, in order to take them back later.
