The City regulator has rushed to change its emergency rules on disclosure of short-selling during rights issues after discovering a loophole that would have enabled hedge funds avoid stating their holdings. The FSA reversed its position on how to take options into account when calculating the size of positions, according to Simmons & Simmons, legal adviser to many of London’s biggest funds. The change of tack came just two days before the rules come into force demanding public disclosure of short positions of more than 0.25% during a rights issue. Critics claim the watchdog introduced the rules to help bank rights issues.