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To ask the Chancellor of the Exchequer, what steps he plans to take to prevent foreign companies and hedge funds benefiting from the fall in share prices of British companies by purchasing shares at a cheaper cost.
This question likely refers to the practise of short selling. We are working closely with the Financial Conduct Authority (FCA) to monitor the volatility in market prices over the past weeks as a result of the impacts of coronavirus (Covid-19).
On Monday 23 March, the FCA stated that aggregate net short selling activity reported to it had been low as a percentage of total market activity and had decreased in recent days. The FCA also stated that there is no evidence that short selling has been the driver of recent market falls. The FCA is continuing to monitor short selling activity closely.
Some European countries have introduced short selling bans, which the FCA has followed in respect of shares for which relevant European National Competent Authorities (NCAs) are responsible. The FCA has not introduced such a ban in the UK and neither has any other major financial market outside the EU, including the United States. It is our view that there should be a high bar to imposing such a ban in the UK given the role short selling can play in the maintenance of open and liquid markets. This is, however, an evolving situation and we are continually evaluating our approach to ensure it is the right one for consumers.
Significant research has previously been done to examine whether bans on short selling, such as those enforced during the financial crisis in 2008, can be effective in stopping stock market falls. The evidence suggested that they were not – pricing continued to fall and so the volatility of the markets persisted.