Would a short-selling ban prevent another HBOS-style panic?

A letter to The Times last week suggested that the best way to avoid another rumour-fuelled run on a bank such as HBOS is to ban short-selling. Tom Bulford puts the practice under the microscope.

The safest way to avoid another rumour-fuelled run on HBOS, argued a letter to The Times last week is to ban short-selling. This is the practice of selling shares that one does not actually own in the hope of buying them back at a lower price.

This is only possible if one can borrow shares, to be delivered after the initial trade to the buyer. So another Times' correspondent argued that stock lenders should also be liable for punishment in the event that the short seller is found to be profiting from peddling false rumours.

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Tom worked as a fund manager in the City of London and in Hong Kong for over 20 years. As a director with Schroder Investment Management International he was responsible for £2 billion of foreign clients' money, and launched what became Argentina's largest mutual fund. Now working from his home in Oxfordshire, Tom Bulford helps private investors with his premium tipping newsletter, Red Hot Biotech Alert.