Hedge Fund Inquisitor Seeks Return Of Short Ban

Jan 22 2009 | 12:24am ET

A British politician set to grill hedge fund managers next week is calling for the restoration of a ban on short-selling financial stocks that expired just last week.

John McFall, who leads a Parliamentary committee that oversees British Treasury policy and who is seen as a close ally of Prime Minister Gordon Brown, asked the Financial Services Committee to reconsider its decision allowing the ban to lapse. Since short-selling of financial stocks became permissible again on Friday, several British banks, including the Royal Bank of Scotland Group and Barclays Bank, have seen their share prices plummet.

“I have heard disturbing anecdotal evidence that some hedge funds have been shorting stocks in U.K. banks,” McFall wrote in a letter to Britain’s financial regulator. “Please confirm that you will not hesitate to re-introduce the ban if it is found that short-selling has contributed to the undermining of stability in the banking sector.”

He asked that the FSA reply by Jan. 27, when several top British hedge fund managers are to testify before McFall’s committee on hedge funds’ role in the financial crisis.

McFall’s call for a restoration of the ban, imposed at the height of the banking crisis in September, comes the same week that Australia’s financial regulator bucked the international trend and extended its shorting ban until March.

The Australian Securities and Investments Commission said it needed more time to examine the situation, citing the increased volatility of financial stocks around the world.

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