Friday, June 13, 2008

Financial Services Authority : Fair Market versus Free Market

In current market conditions, there is increased potential for market abuse through short selling during rights issues. As a result, there has been severe volatility in the shares of companies conducting rights issues. ...

A review will be conducted into how capital raising by listed companies can be made more orderly and efficient. But the Financial Services Authority (FSA) has also been considering what immediate measures can be taken to ... prevent potential abuse during rights issues.

The FSA views short selling as a legitimate technique ... But it also the case that the rights issue process provides greater scope for what might amount to market abuse, particularly in current conditions. We consider 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. ...

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, we are also giving consideration to whether it might be necessary to take further measures in this area. We are 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.

This is the most substantial knee-jerk intrusion by the Financial Services Authority, into the Fantasy World of Free Market Trading advocates, since the wake-up call of Northern Rock. The FSA isn't in its Canary Wharf hammock taking two Rip van Winks.

What has happened? This week, the HBOS share price was driven below 275 pence by short-selling speculators. That was below the price of rights that were announced over a month ago, not even yet approved by shareholders, scheduled for issue in July. Danger, Danger! Even anti-Capitalists would not want capitalism to crash this suddenly, for in our globalized economy, more people would die from a sudden collapse in global capitalism than are dying from Climate Change Induced Starvation.

Extremist Free Marketeers, posturing under the banner of Adam Smith, at last are being monitored by the only institution empowered to do so. Indeed, in the planet of Finance and Economics, the Free Market Extremists are probably more dangerous than the fundamentalist terrorists in the planet of Religion.

For the supermarket shoppers who were introduced to global economic reality by the Fair Trade versus Free Trade movement, this is the equivalent in the world of Big Global Money: the Fair Market versus Free Market quarrel between economists. The truth is, there has never been such a thing as a Free Market. Like the simple circle, it cannot exist in nature; it can only exist as a simple mathematical concept. There are things that approach a perfect circle, but this does not necessarily make them more useful or desirable to either Mankind or Planetkind.

The Europeans are probably snickering at the British. They have always been rather horrified at the radicalism of super-free markets, and have maintained a dignified but studious distance. How nice to see the British finally have to regulate their markets!

This is another climactic moment in history, for the British as a nation were the Extremist Free Marketeers of Western Europe in the last few decades. Commonly attributed to Thatcherism, she was in fact just the figurehead at a time when Britain needed shaking up. The shaking up probably should have stopped completely during John Major, but strangely enough, the Labour government started it up again.

Today, we have the first evidence of the UK economic pendulum swinging back to Fair Markets. It was necessary, or there would be no markets at all, and we would all end up starving like Mugabe's Zimbabweans.

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