Covid-19: Financial Markets

Debate between Lord Callanan and Lord Bates

Wednesday 25th March 2020 Lords Chamber

[Lord Bates]

To ask Her Majesty’s Government what steps they are taking to address short-selling on financial markets of shares in companies based in the United Kingdom impacted by the COVID-19 pandemic.

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

My Lords, short selling is a legitimate investment technique that contributes to orderly and open markets, supporting many consumers. As the recent Financial Conduct Authority statement makes clear, short selling is not responsible for recent market falls, and there has been a decrease in its activity in recent days. We continue to monitor activity in UK markets. It is our view that there should be a high bar for the FCA to impose a short-selling ban.

[Lord Bates (Con)]

I thank my noble friend for that Answer and personally thank him for all that he and his department are doing at this time to support British business. However, can he understand the anger and concern felt by many? At a time when the British Government and British taxpayer are mounting an unprecedented collective national effort to stand together with businesses and save jobs, a small number of hedge funds are cashing in on the crisis by short selling stock in struggling businesses, pulling the financial rug from under their feet and those of their employees, and betting on the British Government and taxpayer to pick up the pieces. Can my noble friend confirm that short selling positions have tripled in London over the past week? Will he make it clear to those hedge funds that their actions may at present be legal but are far from moral at this time? Will he echo calls from the Governor of the Bank of England, Andrew Bailey, for those responsible to stop, and if they do not, will he urge the regulator to use the existing powers to ban the practice for the duration of the crisis, as other jurisdictions have done?

[Lord Callanan]

I thank my noble friend for his comments but taking short and long positions allows for the hedging of risks, and short selling can therefore benefit a wide range of investors, not just hedge funds, by helping them to manage the risk in their portfolios, particularly when the market is volatile. Many of these investors are ordinary investors, including pension funds for employees of companies and local government. However, I understand my noble friend’s point, and the regulators are closely monitoring activity. I cannot comment on the figures that he quoted about the extent of short selling in recent days but overall, the FCA’s reporting data shows that aggregate net short selling activity reported to the FCA is low as a percentage of total market activity and has in fact decreased over successive recent days.