In These New Times

Ban on shorting financial stocks sends betting soaring
By Sean Farrell, Financial Editor Independent
Thursday, 25 September 2008

Fixed-odds betting on financial markets has surged in recent days as traders find ways to get around the ban on short-selling financial stocks.

BetsForTraders.com, a financial bookmaker, has reported volumes up by more than 400 per cent since last Thursday’s ban, with almost all the increase in activity in bets against banking stocks.

Lloyds TSB is the most heavily bet-against bank share, with 84 per cent of open bets on the bank predicting its shares will fall following its agreement to buy HBOS. Other favourites for short betting include Royal Bank of Scotland, Barclays, Goldman Sachs and Morgan Stanley.

The Financial Services Authority (FSA) banned the taking of additional short positions on specified financial stocks last Thursday and requireddisclosure of existing positions starting from Tuesday. A raft of further disclosures was made yesterday, withAnglo Irish Bank, Aberdeen Asset Management and Bradford & Bingley among the most shorted stocks.

Ryan Kneale, the chief market analyst at BetsForTraders.com, said: “We are grateful to the FSA for the decision, as it has boosted our business a lot. Thanks to the ban, fixed-odds financial betting overnight became the only way of shorting a bank, and it was inevitable that traders would find this loophole as they scrambled to get around these protectionist rules.”

Spread-betting firms have said they will stop offering bets against banks’ share prices, but Mr Kneale said he had no intention of doing so. Individual accounts can go into six figures, he said. Hedge funds cannot place bets, but Mr Kneale said many of his company’s clients work at hedge funds.

Unlike shorting stocks, placing bets cannot drive the share price down.