U.K. bans short-selling of financial shares

Britain's financial regulator said Thursday it was temporarily banning the short-selling of shares in financial companies that are listed on the London Stock Exchange.

Short-selling, in which investors sell borrowed shares in hopes of buying them back later at a lower price, has been blamed for sending bank share prices plummeting and exacerbating turmoil in financial markets. U.S. regulators tightened rules on the practice Wednesday.

Hector Sants, chief executive of Britain's Financial Services Authority, said that while the agency still regards short-selling as "a legitimate investment technique in normal market conditions, the current extreme circumstances have given rise to disorderly markets."

London's ban goes into effect at midnight Thursday local time and will remain in place through Jan. 16,. Sants said the ban was intended to "protect the fundamental integrity and quality of markets and to guard against further instability in the financial sector."

The FSA said it would review the ban after 30 days and may extend it to other sectors.

Aggressive forms of short-selling were being blamed in part for the rapid downfall of Lehman Bros., the No. 4 U.S. investment bank, which filed for bankruptcy protection on Monday.

Some British politicians said that Britain's biggest mortgage lender HBOS also fell victim to speculators. HBOS's share price plummeted Wednesday before it was snapped up by banking rival Lloyds TSB.

On Wednesday, opposition lawmaker Vince Cable accused hedge fund managers of "hunting in packs" to undermine the bank. Alex Salmond, the first minister of Scotland, where about 17,000 HBOS jobs are based, said Thursday he wished the clampdown on short-selling had taken place earlier.

The FSA said it would also require investors to publicly disclose existing large bets made against financial companies. Any short position whose value exceeded 0.25% of the targeted company's ordinary share base would have to be disclosed on a daily basis, the FSA said.

The FSA said the disclosure requirement would come into effect Tuesday.