September 25, 2008 / 3:36 PM / 11 years ago

UK tech stocks hit after shorting ban on banks

LONDON, Sept 25 (Reuters) - Short-selling activity in the UK technology sector rose more sharply than any other sector in the two days after British regulators imposed a ban on betting bank stocks will fall, according to data seen by Reuters.

The figures from research firm dataexplorers.com show the average level of market cap on loan in the technology sector rose 6.26 percent from the close of business last Thursday to the close of business on Monday.

Stock lending is regarded as a reliable gauge of the scale of short selling taking place, as investors are loaned stock by existing shareholders to allow them to sell a stock short.

Tech stocks on average had 5.59 percent of their market cap on loan as of last Thursday, a number that had increased by 0.35 percentage points by the end of the day on Monday.

The Financial Services Authority imposed a four-month ban on short-selling financial stocks last Friday amid concern the practice was contributing to confidence-sapping falls in the shares of banks and other financial stocks.

Several financial industry related companies have asked to be added to the original list of firms the FSA has protected from short selling. They fear that aggressive speculators will simply move along the chain having been denied access to banks.

Aberdeen Asset Management ADN.L and Schroders (SDR.L) are among those who have been included since Friday. Hedge fund firm Man Group (EMG.L) has asked to be added to the list, so far without success.

The data appear to confirm their fears, showing the broad financial services sector remains heavily shorted with an average of 7.5 percent of market capitalisation on loan at Monday’s close. That had increased by 3.32 percent from Thursday’s close, despite the ban.

Retail remains the most shorted sector overall, with an average of 8.2 percent of market capitalisation on loan. The level of shorting here rose 3 percent in the two days following the FSA ban.

In the week to Monday’s close, the personal and household goods sector saw the sharpest increase in short interest with an 11 percent spike in the level of market cap on loan.

It was closely followed by technology, showing an increase of 9.8 percent, while the food and beverages sector saw the stock lending level jump by 7.8 percent.

The FSA’s ban contributed to a 2.9 percent fall in the amount of stock on loan in the bank sector over the course of Friday and Monday. Investors are not allowed to take new short positions or add to the short position, but do not have to sell existing position. (Editing by Sue Thomas)

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