UPDATE 1-UK's FSA bans short-selling in some Italian stocks

Wed Feb 27, 2013 2:52am EST

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LONDON Feb 27 (Reuters) - Britain's Financial Services Authority has temporarily banned short-selling of Banco Popolare and three other Italian stocks, echoing a move by Italian market watchdog Consob on Tuesday.

The FSA said on Wednesday that it had banned shorting of Banco Popolare, Banca Carige, Mediolanum , Intesa on all UK trading venues as of Wednesday, "following a significant price movement and in consultation with another Competent Authority".

Short-selling means borrowing shares in a company and selling them in the market with the intention of buying them back later at a lower price.

Consob's move came in the wake of an inconclusive Italian election result earlier this week and volatility in the Italian stock market.

However, not everyone agreed with the ban.

"Short selling does not increase volatility in markets and banning it can actually increase it...such bans do little to support share prices whilst damaging liquidity and widening spreads which are both bad news for investors," David Lewis, EMEA Head of SunGard Astec Analytics said on Tuesday.

"Short selling allows proper price discovery and is part and parcel of an efficient capital market," he added.

Citing his firm's study of the short selling bans in Spain, which were finally lifted last month, Lewis said there was no real change in the volatility of the market for the duration of the ban. It also showed little correlation between the direction of share price movement and the subsequent imposition of a ban.

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