15 May 2009

NAPF backs UK short-selling strategy

The UK National Association of Pension Funds urged the UK’s FSA to steer clear of a blanket ban on short-selling of equities, arguing certain investments strategies “depend on the ability to go short”.

The UK National Association of Pension Funds urged the UK’s FSA to steer clear of a blanket ban on short-selling of equities, arguing certain investments strategies “depend on the ability to go short”.

 

A response to an FSA discussion paper on the subject pretty much backed every argument set out by the regulatory authority for not banning shorting, and the NAPF went further to note strategies now popular with pension funds, such as absolute returns, “that seek to reduce market risk depend on the ability to go short”.

 

The body representing 1,200 UK pension schemes acknowledged “short-selling has on occasion been seen as undermining a company’s share price” but argued the mark impact is “in essence no different from that of buying”.

 

This discussion paper was a little unusual in its format as the questions asked were likely to generate ‘I agree’ responses, such as “do you agree that there should not be a ban on all forms of short-selling?”

 

In most cases, the NAPF said it agreed with the FSA’s stance of administering a regime which required all trades to be disclosed if they are worth over 0.5% of a company’s stock, and said pension funds were against constraints which might slow price discovery, such as ‘tick’ rules and ‘circuit breakers’.

 

The practice of short-selling was accused of being at the heart of the financial markets turmoil after Lehman Brothers collapsed last September, and regulators at that time prevent such activity on financial services assets at least, but the FSA lifted its ban, contrary to other European regulators.

 

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