Britain's financial watchdog yesterday defended rules which force investors to reveal short positions in companies going through rights issues, saying it had helped prevent market abuse and further instability.
The Financial Services Authority introduced the rules last month, in a surprise move aimed at restoring confidence ahead of rights issues by mortgage banks HBOS and Bradford & Bingley, after both fundraisings risked failure following steep falls in
their shares.
The decision, which means short positions over 0.25 percent must be disclosed, has been criticised by the hedge fund industry, which has queried the need to introduce the measures without qualification, and by some investors.
FSA chief executive Hector Sants, however, said the watchdog's unusual decision to push ahead with new rules without consulting the industry had aimed to ensure the issues were "conducted in an open and transparent manner" and had been a success.
"We had a view...that there was abusive behaviour taking place.
"I am confident that the actions we took led to an abatement in that behaviour," he said after the regulator's annual general meeting.
"I believe the action was wholly justified and the subsequent market developments demonstrate that."
Both HBOS and B&B had shares trading below the rights issue price when the cash calls went ahead but succeeded in raising funds thanks to underwriting and sub-underwriting agreements.
The FSA is currently reviewing the short-selling rules as part of a broader appraisal of rights issues due to be completed later this year, together with the government.
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