LSE Comes Out In Favour Of Short-Selling

by Carla Johnson, Investors Offshore, London

21 August 2002

Short-selling has come under attack recently, particularly from companies whose shares have fallen on world stock exchanges, but most regulatory authorities and market-linked organisations have defended it as a necessary part of market operations.

Now the London Stock Exchange has added its voice in favour of the practice. After members of the Bank of England's stock lending and repo committee, which brings together leading market participants and regulators, met last Thursday to discuss possible moves towards greater disclosure of securities lending (the inseparable companion of short selling), the Exchange said: "Short selling plays an important role in UK financial markets, as it enhances price discovery and liquidity and helps maintain orderly markets. In addition, short selling is integral to many bona fide trading strategies such as hedging long positions or being one element of an arbitrage trade."

Sir Howard Davies, chairman of the Financial Services Authority, also represented at the meeting, says that short selling is necessary and desirable but is sympathetic to arguments for greater disclosure. The volume of stock-lending is one possible indicator of the amount of short-selling that is taking place, and in the US such figures are routinely published.

Crest, the organisation which handles settlement for the LSE, told the Financial Times that it is in talks about publishing figures on stock lending, but said it was "studiously neutral" about whether such figures should be released or not.

Recommended