Britain to end short-sale ban Jan. 16

The United Kingdom’s ban on short selling for select financial companies will be lifted on Jan. 16, according to the Financial Services Authority, the U.K.’s securities and banking regulator. The FSA will hold a “public consultation” Friday to review proposals to lift the short-selling ban, which was introduced on Sept. 19 and applies to 34 commercial banks and organizations holding banking licenses. A similar ban was introduced in the United States on Sept. 15, prohibiting the short selling of shares of nearly 1,000 companies. The U.S. ban was lifted on Oct. 8 after President Bush signed a $700 billion bailout package into law. Seventeen countries introduced a range of short-sale bans when global equity markets started crashing in September. Many of the bans are still in place, including a rule in Australia that bans short selling of any stock. Short selling refers to the practice of borrowing shares to sell and then buying the shares back at a lower price at a later date. Once the ban is lifted in the U.K., regulators there are expected to reintroduce a controversial rule that requires the reporting of all significant net short positions. The rule requires disclosure to regulators if a net short position exceeds 0.25% of a relevant financial institution’s issued share capital. According to a report from the London-based law firm of K&L Gates LLP, the FSA is proposing to expand the short-sale reporting requirements. Despite the initial reaction by regulators around the world to try and steady the equity markets by restricting short selling, several research studies show the bans had little impact on stock prices. “We found that short selling was not a factor in driving down stock prices, and the ban had no effect whatsoever,” said Andrew Baker, chief executive of the Alternative Investment Management Association Ltd. in London. The research cited by Mr. Baker was conducted independently by the Cass Business School at City University London. Some academics have also charged that the bans had a negative impact on the markets by limiting liquidity. Research conducted jointly at Columbia University in New York, Texas A&M University in College Station, and Cornell University in Ithaca, N.Y., over the three-week ban in the U.S. financial sector stocks showed that declined slightly more than 30% of the overall market. “The good news is the ban didn’t cause any lasting damage,” said Charles Jones, chairman of the finance and economics division Columbia University’s business school.