Short-selling rules come under fire

THE chairman of mobile phone giant mmO2 decried the 'woeful inadequacy' of Britain's disclosure rules on short-selling shares.

David Varney attacked the 'glaring anomaly' that while ordinary shareholders have to identify themselves if they own more than 3% of a company, short sellers - who can have an enormous impact on companies' share prices - do not.

'In my view, this cannot be healthy for the working of the market, or inspire investor confidence,' he said in an article for the Financial Times.

Varney's criticisms come in the wake of Legal & General chief executive David Prosser writing a formal complaint to the Financial Services Authority about short-selling regulation.

Senior FSA regulator Michael Foot has rebuffed Prosser's complaintssaying there has been no increase in short-selling by hedge funds during recent volatility in the stock market.

But Varney continued to argue that short-sellers had been a 'contributing factor' and called for similar disclosure rules to those in New York, Hong Kong and Tokyo.

Since mmO2 demerged from BT, the names on its shareholder register have hardly changed, although more than 1.6 times the number of its shares in issue have been traded on the Stock Exchange, he said.

The obvious implication was that significant numbers must have been lent to hedge funds and other institutional traders to allow them to deal.

Short-sellers borrow shares to trade with the hope of buying them back at a later date when their value has fallen.

Varney questioned whether it was 'prudent or responsible' for shareholders to lend stakes to hedge funds which might use them to drive down the share price through short-selling.

In New York, shares can only be sold short above the last price at which they were traded - a law aimed at preventing aggressive short-selling. The New York Stock Exchange also publishes a monthly report on short-selling positions.