Is shorting banks a crime?

Did this really just happen?

The Board of the Financial Services Authority (FSA) today (Thursday 18 September) agreed to introduce new provisions to the Code of Market Conduct to prohibit the active creation or increase of net short positions in publicly quoted financial companies from midnight tonight.

The full Financial Services Authority statement

Surely it’s a normal part of the way the market functions? The FSA go on to explain:

Hector Sants, chief executive of the FSA, said:

“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. 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 phrase “disorderly markets” implies that people have been colluding to manipulate the market.  In other words those city boys will make money one way or another – what a bunch of bankers.  Unfortunately it’s very difficult to prove insider trading – people in the city get away with it all the time.

But let’s not kid ourselves that this whole market crash and the HBOS troubles are caused by people manipulating the market.  This is the equivalent of stopping people from looting during a riot – it’s the least of our worries.

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