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regulators running scared September 18, 2008

Posted by Bradley in : Uncategorized , trackback

Extraordinary times produce extraordinary regulatory actions. The FSA announced today that:

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 rules will be reviewed after 30 days and will persist until mid-January. The announcement states that detailed changes to the Code of Market Conduct are to be published before the market opens tomorrow. Thus it seems that the regulation is designed to operate (from midnight) before its details are made public (before the market opens tomorrow). The control will apply to short selling with respect to (a list of) financial companies rather than with respect to issuers in general. And it is justified by reference to the need to avoid disorderly markets.

This action is similar to that taken by the SEC in July, although there the order was dated a few days before it took effect (although only published in the Federal register on the date of effectiveness). The SEC yesterday announced its own new emergency rules which took effect at midnight but which are set to expire on October 1 unless extended.

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