FSA bans shorting financial stocks

By Myles Neligan/Rachelle Younglai

LONDON/WASHINGTON (Reuters) - The Financial Services Authority imposed a temporary ban on short-selling financial stocks on Thursday and the top U.S. securities regulator was said to be weighing a similar measure in a bid to stabilize stocks prices.

The U.S. Securities and Exchange Commission met late Thursday night, and a source briefed on the matter said a temporary ban on short sales of some, or all, stocks was being considered.

SEC Chairman Christopher Cox told reporters after a meeting with lawmakers on the current global financial turmoil that the agency would have more to say on short-selling rules "as early as tomorrow."

In another sign of a spreading crackdown on short sales, New York state began a probe into illegal short-selling in the shares of major Wall Street firms such as Goldman Sachs Group (GS.N) and Morgan Stanley (MS.N).

Under the FSA ban, investors will be barred from taking new short positions or adding to existing ones in financial shares from midnight on Thursday Sept 18.

The ban will remain in force until January 16, 2009 and will be reviewed after an initial period of 30 days, the FSA said.

The move, the strictest major-market clampdown on short- selling to date, comes hours after Lloyds TSB Group (LLOY.L) agreed to buy rival HBOS HBOOY.PK in a rescue takeover following a dramatic fall in the HBOS share price earlier this week.

The measure underscores growing concerns that short-selling -- in which an investor sells borrowed stock in the anticipation the price will fall, allowing the stock to be bought back more cheaply -- has exacerbated sharp declines in UK banking stocks since the onset of the credit crunch.