City lawyers have warned of chaos over the Financial Services Authority’s (FSA) new rules on short selling, following fierce criticism of the regulatory body’s handling of the issue.
As first reported on TheLawyer.com (18 June), the FSA has been inundated with complaints from law firms, which say the rules are unclear and were rushed out without consultation.
Last week the regulator was forced to make a second announcement clarifying its position. But according to City lawyers there are still key questions to be answered.
The new rules, which came into force on Friday 20 June, will force investors to disclose significant short positions in companies undertaking rights issues.
The move is designed to prevent opportunistic investors undermining share offerings, like those undertaken by Royal Bank of Scotland, Bradford & Bingley and HBOS.
But at the time of going to press it was still unclear whether the first disclosure would be made on the Friday or the following Monday (23 June). Travers corporate partner Richard Spedding told The Lawyer: “In the absence of clarity I think it’s going to be chaos.”
Simmons ;financial services partner Darren Fox said: “There are still a number of open issues and no one knows whether they can comply or not.
“If the FSA tries to enforce this, the first thing the firm would do is say, ‘Sorry, the rule wasn’t introduced properly, so it doesn’t apply to us’. It’s not entirely clear under what piece of legislation they’ve avoided the consultation process.”
The first draft of the new framework attracted ridicule for containing several spelling mistakes.
One partner said: “It felt as though it had been written on the back of a cigarette packet.”
The FSA has said it will address further questions about the new regime as they arise.