LONDON (Reuters) - The financial watchdog imposed new rules on Friday to smooth the process for firms raising cash from rights issues, prompting hedge fund criticism that the move had been rushed in.

Investors now need to reveal any short positions over 0.25 percent in companies going through rights issues, under surprise guidelines unveiled by the Financial Services Authority (FSA) a week ago.

The rules came into effect at midnight, despite hedge fund industry lobby group Alternative Investment Management Association (AIMA) requesting an extension.

AIMA said complying with the guidelines will have a significant impact on some of its members and queried the justification for introducing the measures without consultation.

"AIMA has requested from the FSA as soon as possible the specific findings of any investigations that have led to this unprecedented event as well as clarification on the many issues outstanding on the definitions, scope and implementation of the regime," it said in a statement.

The FSA's move is aimed at restoring confidence in cash calls ahead of rights issues by UK banks HBOS HBOS.L and Bradford & Bingley BB.L, after the fundraisings risked failure following steep falls in their shares.

The rights issue process provides greater scope for market abuse, the FSA said.

Short-sellers, often hedge funds, sell borrowed shares in the market in the hope of buying them back more cheaply at a later date. During a rights period, trading can be more volatile and losses accelerate if shares fall below the issue price.

Investors who have taken a short position have until 3:30 p.m. the following business day to disclose it. They only need to disclose the initial short position.