Fresh short-selling of financial stocks outlawedSeptember 22, 2008guidfarr No Comments »
A number of financial authorities have imposed emergency measures outlawing fresh short-selling of financial stocks and any increase in existing short positions across all types of financial products, in a drastic effort to prevent further instability in the financial sector.
Spread betting firms have suspended taking short trades on a number of global exchanges, following the financial regulators move to stop short-selling of shares in financial institutions. Hector Sants, the chief executive of the Financial Services Authority (FSA) said that, although short-selling was legitimate, it had contributed to a ‘disorderly market’.
Some expected that spread betting would not be affected by the regulators’ intervention as those engaging in the activity do not take a physical interest in the underlying stock but bet on whether its price will move up or down.
However, the ban on short-selling has now led to restrictions on financial spread betting for the coming weeks. All spread betting providers have stopped short selling on the restricted shares. Even though the prohibition may not strictly apply to spread betting as they are a derivative product, without the ability to take short positions on the market as a hedge, most spread betting providers had little choice but to stop offering ‘short’ spread bets on the affected companies.
While this is a blow to spread betting, it is being outweighed by the significant increase in overall financial spread betting activity sparked by recent volatility on the financial markets. Also, spread-betting companies tend to cap short-sales because they have to hedge them from their own funds, rather than using the money put down by the short-seller. This limits reliance on the practice.
Delta Index’s Chris Curran said spread betting was up 300 per cent last month and that most of its customers preferred to bet on the movement of an index rather than individual shares.
IG Group, the largest spread-betting company, said that the new rules would have a negligible impact on its business, as less than £150,000 of IG’s total revenue of £53 million resulted from clients shorting the stock identified by the FSA.
Simon Denham, managing director of Capital Spreads, estimates that there are more than 20,000 individuals who short-sell shares through spread-betting companies. He said: ‘Liquidity will now dry up in these stocks, so that any buying or selling of the affected companies will have massive ramifications on the prices.’
SHORT SELLING US SHARES
The US Securities and Exchange Commission (SEC) has temporarily banned naked short-selling of US stocks and short-selling in general in US financial stocks. This affects the short-selling of CFDs and spread betting on US stocks.
SHORT SELLING UK SHARES
The UK’s Financial Services Authority (FSA) has temporarily banned short-selling of UK financial stocks. This affects the short-selling of CFDs and spread bets on UK financial stocks. The ban will be in place until 16 January 2009 although it will be reviewed after 30 days.
SHORT SELLING AUSTRALIAN SHARES
The Australian Securities and Investments Commission (ASIC) has banned naked short selling and, in addition, stipulated covered short selling must be disclosed.
SHORT SELLING SWISS SHARES
The Swiss Federal Banking Commission (SFBC) has emphasized that naked short selling is currently not permitted.
BAFIN in Germany, AMF in France and Irish Authorities have also banned the creation of new short positions in certain stocks as outlined below.
Short Selling FAQs from IG Index website -:
What is the new policy governing UK shares?
On 18 September 2008 the Financial Services Authority (FSA) decided to prohibit the creating or increasing of a short position in more than 30 UK quoted banks, general insurance and life assurance companies.
What are the specific UK shares that I cannot sell short?
A full list of affected stocks can be found below. You cannot open a new down bet or increase the size of an existing down bet on any of these stocks.
How long will the FSA restrictions last?
The regulation ceases to have effect on 16 January 2009.
What if I already have an existing short position in one of the affected UK stocks?
You can keep your position open but you cannot increase your short position any further. Under certain circumstances when borrowing restrictions arise, as detailed in our Customer Agreement, this may not be the case and your position may have to close prematurely.
Could I mistakenly open a new short position in one of the affected UK stocks?
We have adjusted our systems to impose restrictions on the affected stocks; but, it remains your own responsibility to make sure you do not breach the FSA’s requirements.
Will I have any difficulties closing long positions on any of the affected UK stocks?
No, selling to close an open position is not short selling and is completely unaffected by these changes.
Can I go short on any other UK stocks?
Yes, there are no new restrictions on any other stocks. The only stocks affected are those named in the above attachment.
What if I already hold an existing short position in a UK stock not included in the list?
These are unaffected. You can keep your position open until it expires or you choose to close it.
Will I have any difficulties closing other long positions on non-affected UK stocks?
No, there are no issues closing existing long positions.
Are other markets outside of the UK going to be affected?
Yes, the US regulator announced similar measures on Friday 19 September 2008. We will update our current rules in line with regulatory changes as any new restrictions are applied. This will affect the availability of certain stocks to be sold short, as in the UK. Similar announcements have been made regarding the Irish and Swiss exchanges and there may be more announcements to follow.
|ADMIRAL GROUP PLC||ADML|
|ALLIANCE & LEICESTER PLC||ALLL|
|ALLIANCE TRUST PLC||ATST|
|ARBUTHNOT BANKING GROUP PLC||ARBB|
|BRADFORD & BINGLEY PLC||BB|
|BRIT INSURANCE HOLDINGS PLC||BRE|
|EUROPEAN ISLAMIC INVESTMENT BANK PLC||EIIB|
|FRIENDS PROVIDENT PLC||FP|
|HIGHWAY INSURANCE GROUP PLC||HWY|
|HSBC HOLDINGS PLC||HSBA|
|JUST RETIREMENT HOLDINGS PLC||JR|
|LEGAL & GENERAL GROUP PLC||LGEN|
|LLOYDS TSB GROUP PLC||LLOY|
|LONDON SCOTTISH BANK PLC||LSB|
|NOVAE GROUP PLC||NVA|
|OLD MUTUAL PLC||OML|
|ROYAL BANK OF SCOTLAND GROUP PLC||RBS|
|RSA INSURANCE GROUP PLC||RSA|
|ST JAMES’S PLACE PLC||SJP|
|STANDARD CHARTERED PLC||STAN|
|STANDARD LIFE PLC||SL|
|United States Instruments||Ticker|
|A F L A C Inc||AFL (US)|
|Aetna Inc New||AET (US)|
|Allstate Corp||ALL (US)|
|American International Group Inc||AIG (US)|
|Ameriprise Financial Inc||AMP (US)|
|Aon Corp||AOC (US)|
|Assurant Inc||AIZ (US)|
|B B & T Corp||BBT (US)|
|Bank Of America Corp||BAC (US)|
|Bank Of New York Mellon Corp||BK (US)|
|Blackstone Group L P||BX (US)|
|C I G N A Corp||CI (US)|
|C M E Group Inc||CME (US)|
|Chubb Corp||CB (US)|
|Cincinnati Financial Corp||CINF (US)|
|Citigroup Inc||C (US)|
|Comerica Inc||CMA (US)|
|Coventry Health Care Inc||CVH (US)|
|E Trade Financial Corp||ETFC (US)|
|Federal Home Loan Mortgage Corp||FRE (US)|
|Federal National Mortgage Assn||FNM (US)|
|Federated Investors Inc Pa||FII (US)|
|First Horizon National Corp||FHN (US)|
|Franklin Resources Inc||BEN (US)|
|Genworth Financial Inc||GNW (US)|
|Goldman Sachs Group Inc||GS (US)|
|Hudson City Bancorp Inc||HCBK (US)|
|Humana Inc||HUM (US)|
|Huntington Bancshares Inc||HBAN (US)|
|Intercontinentalexchange Inc||ICE (US)|
|Janus Cap Group Inc||JNS (US)|
|Jpmorgan Chase & Co||JPM (US)|
|Keycorp New||KEY (US)|
|Lehman Brothers Holdings Inc||LEH (US)|
|Leucadia National Corp||LUK (US)|
|Lincoln National Corp In||LNC (US)|
|Loews Corp||L (US)|
|M B I A Inc||MBI (US)|
|M G I C Investment Corp Wis||MTG (US)|
|Marshall & Ilsley Corp New||MI (US)|
|Merrill Lynch & Co Inc||MER (US)|
|Morgan Stanley Dean Witter & Co||MS (US)|
|N Y S E Euronext||NYX (US)|
|National City Corp||NCC (US)|
|Northern Trust Corp||NTRS (US)|
|P N C Financial Services Grp Inc||PNC (US)|
|Principal Financial Group Inc||PFG (US)|
|Progressive Corp Oh||PGR (US)|
|Prudential Financial Inc||PRU (US)|
|Regions Financial Corp New||RF (US)|
|S L M Corp||SLM (US)|
|Safeco Corp||SAF (US)|
|Schwab Charles Corp New||SCHW (US)|
|Sovereign Bancorp Inc||SOV (US)|
|State Street Corp||STT (US)|
|Suntrust Banks Inc||STI (US)|
|T Rowe Price Group Inc||TROW (US)|
|Torchmark Corp||TMK (US)|
|Travelers Companies Inc||TRV (US)|
|U S Bancorp Del||USB (US)|
|Unitedhealth Group Inc||UNH (US)|
|Unum Group||UNM (US)|
|Wachovia Corp 2nd New||WB (US)|
|Washington Mutual Inc||WM (US)|
|Wellpoint Inc||WLP (US)|
|Wells Fargo & Co New||WFC (US)|
|X L Capital Ltd||XL (US)|
|Zions Bancorp||ZION (US)|
|Bank of Ireland||BKIR|
|Allied Irish Banks Plc||ALBK|
|Irish Life and Permanent Plc||IPM|
|Anglo Irish Bank Corporation Plc||ANGL|
|ARL (Ger)||AAREAL BANK AG|
|ALVB (Ger)||ALLIANZ SE|
|AMB2 (Ger)||AMB GENERALI HOLDING AG|
|CBK (Ger)||COMMERZBANK AG|
|DBK (Ger)||DEUTSCHE BANK AG|
|DB1 (Ger)||DEUTSCHE BÖRSE AG|
|DPB (Ger)||DEUTSCHE POSTBANK AG|
|HNR1 (Ger)||HANNOVER RÜCKVERSICHERUNG AG|
|HRX (Ger)||HYPO REAL ESTATE HOLDING AG|
|MLP (Ger)||MLP AG|
|MUV2 (Ger)||MÜENCHENER RÜECKVER AG|
|EBH (Den)||EBH Bank|
|JYSK (Den)||Jyske Bank|
|RIL (Den)||Ringkjoebing Landobank|
|SPHIM (Den)||Sparekassen Himmerland|
|SPNO (Den)||Spar Nord Bank|
USA: The SEC has compiled a list of around 799 US incorporated companies, a list of which is available from the following link http://www.sec.gov/rules/other/2008/34-58592.pdf
Australia: The ASIC has prohibited the shorting of all indices and stocks. For more information please visit http://www.asic.gov.au/asic/asic.nsf
For anyone who wants to keep up with the non-stop newsflow on shortselling restrictions around the world – http://www.newsnow.co.uk/h/Business+&+Finance/Markets/Short-Selling