Hedge funds, aka short-selling spivs, are looking a bit desperate this morning. This from the Daily Mail:
A group of the world’s biggest hedge funds are planning to sue the Financial Services Authority for millions of pounds of losses incurred as a result of the regulator’s ban on short-selling last week.
Lawyers are being galvanised on behalf of a raft of hedge funds which claim the financial watchdog has illegitimately extended its powers and caused ‘wide-spread capital destruction.’
One said: ‘The FSA’s remit is to maintain orderly markets – the markets were working fine, only the banks were going bust. With one swoop, the regulators have wiped out perfectly legitimate businesses and have cost some funds millions. They have gone for the big political hit without a thought for the damage they are wreaking. There may be unintended consequences but it’s outrageous and illegal.
All of which might be a valid point were it not for the fact that, in the current “extreme circumstances,” as the FSA puts it, the proverbial rulebook seems to have been thrown right out Hector Sants’ window.
Burried at the bottom of the Daily Mail article is this admission from an unnamed FSA source. If true, it suggests the FSA did indeed consciously ignore its own rules when it neglected to issue an RNS statement regarding HBOS and Lloyds TSB. The ommission may have allowed spivvy buyers to make a cool £190m, according to the Daily Mail.
Sources close to the FSA admitted that action would have been taken in normal circumstances, but fears of another Northern Rock convinced authorities to waive procedures.
‘We could have had the shares suspended but we reckoned there was a risk of triggering a retail run,’ said one source.
It is understood the regulator kept in touch with both banks during the morning and approved the decision not to make any announcement until the afternoon. The talks eventually led to a £12.5bn takeover of HBOS.
All of which makes a concerted hedgie legal challenge against the short-selling ban look a bit futile optimistic. The rules are virtually meaningless in the current climate. Don’t expect the FSA to go any lighter on the City in return though. They’re already eyeing those bonuses.