The regulator explained that in current market conditions, there is increased potential for market abuse through short selling during rights issues.

It continued: "As a result, there has been severe volatility in the shares of companies conducting rights issues. This is potentially damaging not only to the issuers in question but also to confidence in the overall fairness and quality of the UK market."

"It can be particularly prejudicial to the interests of small investors. The problem is compounded by the length of time taken to complete rights issues."

"A review will be conducted into how capital raising by listed companies can be made more orderly and efficient."

However, the FSA revealed, it has also been considering what immediate measures can be taken to maintain market confidence and prevent potential abuse during rights issues.

It went on to add: "The FSA views short selling as a legitimate technique which assists liquidity and is not in itself abusive. But it is also the case that the rights issue process provides greater scope for what might amount to market abuse, particularly in current conditions."

"The FSA has noted that it considers that, in the first instance, improving transparency of significant short selling in such shares would be a good means of preventing the potential for abuse. In these circumstances non-disclosure of significant short positions gives the market a false and misleading impression of supply and demand in the securities concerned."

"We are therefore introducing provisions in our Code of Market Conduct, to come into effect from Friday 20 June 2008, which will require the disclosure of significant short positions in stocks admitted to trading on prescribed markets which are undertaking rights issues."

"For this purpose, we are defining a significant short position as 0.25% of the issued shares achieved via short selling or by any instruments giving rise to an equivalent economic interest. The obligation will be to disclose positions exceeding this threshold to the market by means of a Regulatory Information Service by 3.30pm the following business day."

In addition to the new disclosure regime, the FSA is giving consideration to whether it might be necessary to take further measures in this area.

To this end, the Authority is also currently examining a number of options including the following: restricting the lending of stock of securities in rights issues for the purposes of enabling short selling; and restricting short sellers from covering their positions by acquiring the rights to the newly issued shares.