The thing about useful stuff is: When share prices fall, it's not always short selling

When share prices fall, it's not always short selling Thursday, January 22, 2009

The dramatic falls in UK banking share prices in recent days have prompted people to immediately conclude it is directly related to the FSA's removal of the short selling ban on UK bank shares. The Chairman of the Treasury Select Committee has already contacted the FSA in this regard and prompted the Chair of the FSA to comment in a radio interview this morning that the ban could be re-introduced at any time and without warning, albeit conceding that there was no evidence that short selling was the cause.

The Short Stories blog, which monitors stock borrowing and short interest in stocks, highlights the relatively trivial levels of shorting that appears to be going on.

Clearly the timing suggests some causality between the declines and shorting but one other culprit exist - the Government recapitalisation and insurance plans revealed to the markets on Monday. That such action appears necessary has prompted increased jitters, with the consequence that existing investors appear to be dumping their stock in fear of what lies ahead. So perhaps those levelling criticism and anger should be actually focussing their comments on existing shareholders who are voting with their feet and heading for the exit.