Rights: A question of rights

Severe volatility during a number of rights issues from banks in distress has prompted the UK’s financial markets regulator, the Financial Services Authority, to require disclosure of significant short positions in companies undertaking rights issues.

The move is aimed at reducing the potential for market abuse, which has become a hot topic in London following investigations of the spreading of false rumours that caused HBOS’s share price to plunge dramatically in March.

The FSA’s new rules require any short positions amounting to 0.25% or more of outstanding shares to be declared, and has sparked protests of unfairness from the hedge fund community. Significantly, the FSA’s new rule covers positions held through derivatives that give an equivalent economic interest as well as direct short selling.

The disclosure regime, which came into effect on June 23, has revealed the significant extent to which...