City warns FSA over its short seller disclosure regime

Hedge fund gives stark warning to UK regulator that its new rights issue rules could backfire

LONDON – Opposition to the UK Financial Services Authority’s new short seller disclosure regime announced last week and due to come into force today, is mounting. City hedge funds has warned the FSA that the new rules could backfire and push up the cost of raising capital. In a letter to the FSA, hedge fund trade association the Alternative Investment Management Association (AIMA) said it was disappointed with the FSA’s decision to introduce the new rules without any prior consultation.

Andrew Baker, deputy CEO of AIMA said: “The FSA has an obligation to follow a consultation process with industry when new measures of this nature are set to be introduced. This measure appears to be in response to the need to recapitalise the banking system. This seems to be a rushed measure to assist a single sector and undoubtedly sets an awkward precedent for the future.”

The response seems to agree with City suspicions that the FSA introduced the new rules as a knee-jerk reaction to help rescue the rights issue of banks including HBOS, rather than its stated reason of suspected market abuse by short-sellers.

The FSA has however prepared new guidance that will give short sellers until Monday to announce their positions.