British regulator bans short-selling in financial stocks

LONDON, September 18, 2008 (AFP) – Britain declared a halt to short-selling — when investors borrow company stock to sell it — on Thursday, and warned it could extend the ban to other financial sectors in order to steady the markets.

“While we still regard short-selling as a legitimate investment technique in normal market conditions, the current extreme circumstances have given rise to disorderly markets,” Financial Services Authority (FSA) chief executive Hector Sants said in a statement.

“As a result, we have taken this decisive action, after careful consideration, to protect the fundamental integrity and quality of markets and to guard against further instability in the financial sector.”

“The FSA stands ready to extend this approach to other sectors if it judges it to be necessary,” the regulatory body said.

The move, which came into effect at midnight (2300 GMT) and will last until January 16, follows similar action by US stock market regulators as the practice is blamed in part for the current financial turmoil.

Short-selling can put enormous pressure on markets if sentiment turns negative — as it has done over past months in the credit crunch — and is considered partly responsible for the dramatic fa