Britain acts to curb short selling of companies raising cash. Lehman Brothers Holdings Inc. (LEH)’s Shares soar

Jun.13, 2008 in Market Outlook

Britain steps in to curb rights-issue short selling

By Sarah Turner, MarketWatch

Last Update: 6/13/2008 9:27:00 AM

LONDON (MarketWatch) — Britain’s financial regulator moved Friday to clamp down
on the short selling of companies that issue new shares to raise cash, acting to
shore up confidence in increasingly fragile equity markets.

The Financial Services Authority said it intends to take steps to “maintain
market confidence and prevent potential abuse during rights issues.”

As part of the crackdown, the FSA will force those holding significant short
positions, or 0.25% of a company’s issued share capital, to disclose their
positions, effective on June 20.

Short-sellers sell shares they borrow in the hope that the stock price will fall
and they will be able to repurchase the shares at a lower price, profiting from
the difference.

Analysts said news of the agency’s decision boosted shares in HBOS (UK:HBOS),
Britain’s biggest mortgage lender by market share and currently in the midst of
issuing 4 billion pounds ($7.8 billion) in stock.

In afternoon trading in London, shares of HBOS rose 13.1% at 320 pence after
climbing as high as 329 pence in the session.

“Comments from the FSA on short-sellers and rights issues are a big part of the
gain in the (HBOS) share price on Friday,” said Oliver Gilvarry, head of research
at Dolmen Securities in Ireland. “It might not be as attractive for short sellers
to push down shares of companies undertaking rights issues,” he added.

Earlier in the week, HBOS was forced to put out a statement saying that its
rights issue was still on track after its stock dropped below the 275 pence level
at which it’s priced the discounted offer.

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