A ban on the short-sale of financial stocks put into effect today by Britain’s Financial Services Authority today was criticized by the U.S. trade group that represents hedge funds.
In a conference call in Washington, this afternoon, Managed Funds Association president and chief executive Richard Baker expressed concern about the effect the British rule may have on regulators and government officials in the United States.
Mr. Baker said he is concerned about the ability of hedge fund operators, both in Britain and the states, to balance portfolio risk, as well as “the effect the issuance [of the British rule] may have on the determinations of our own regulators. Certainly that will be something that the chairman of the SEC and the secretary of the Treasury will observe and feel perhaps that some modification in the disclosure rule may be warranted,” he said.
Washington-based MFA had called the press conference primarily to express concern about Securities and Exchange Commission chairman Christopher Cox’s announcement yesterday that the SEC is considering requiring hedge funds to publicly report their short sales daily , Sept 18.
That would amount to forcing hedge funds to disclose their “work product,” he said, and it could lead to greater volatility in the market as it could further lead some investors to sell off stocks that are being shorted by hedge funds.
Mr. Baker suggested that hedge funds could report short sales to the SEC confidentially in cases where the SEC has concerns about market manipulation.
He also called for Mr. Cox, Treasury Secretary Henry Paulson and Federal Reserve Board chairman Ben Bernanke to meet with hedge fund industry officials to discuss the concerns about hedge fund short selling.
“We are not destroying any economic value in the market place. We bring value to the market place,” Mr. Baker said.
The new FSA rules would require disclosure on all positions of more than 0.25% of a stock. FSA said it may extend the rule, which is to remain in force until Jan. 16, to other sectors, and it will review it in 30 days.
“While we still regard short-selling as a legitimate investment technique in normal market conditions, the current extreme circumstances have given rise to disorderly markets,” said FSA chief executive Hector Sants in a statement, according to the report.
It said the action was taken “to protect the fundamental integrity and quality of markets and to guard against further instability in the financial sectors,” he said.
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