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The UK Financial Services Authority (FSA) has received applications from individual companies vying to be included on its restricted short selling list, an insider told dealReporter.

On Friday the FSA banned short selling of UK banks and insurance companies. The insider explained the rationale behind the move was to ban short selling of UK incorporated banks of insurers to January with a review in 30 days. The insider added that the ban wasn’t applied to other sectors as it is a legitimate strategy, but as it could be used to commit market abuse and disorderly markets, the regulator was using its powers to create a fair and orderly market.

The ban is constantly under review, she said, but would only be widened to companies or sectors that would have “ a real impact on the market”.

The insider declined to comment on individual applications or any further extension to the ban.

The ban has not been extended to the broader UK insurance and finance sector and companies such as Collins Stewart, mortgage lender Paragon, commercial leasing provider Cattles, insurance companies Willis and Benfield, and some asset managers including New Star, Bluebay, RAB, MAN.

Insiders at many of the financial services companies not included on the list seemed to accept the FSA’s ruling and seemed to understand its objective. The insiders also seemed lukewarm on the possibility of pushing for inclusion on the list.

A person close to one financial company not on the FSA’s short selling black list said he had heard that various companies have talked to the FSA because they are off the list and are worried that they could be shorted as a proxy.

“I get the impression the FSA is swamped with various queries at the moment,” the person said. Companies complaining about not being on the list are only a small part of what they have to deal with, he said.

Usually when the FSA make these decisions they do in-depth consultations for months beforehand, so the regulator will not be used to getting this many questions after they have announced something so quickly, he added.

“The FSA’s list of companies is objective not subjective - in other words they have to come up with a way of drawing the line and that has to be a technical reason - it doesn’t take into account other factors. The problem is where do you draw the line, if you want to take a view on the financial sector you could short something like Thomson/Reuters.”

Other sectors that could potentially be hit by the financial sector fallout include, real estate, house builders and retail. But like the financials not covered under the short sell restrictions, industry sources interviewed by this news service seemed indifferent on pushing for the ban to be applied to their individual stocks.

An insider at heavily shorted UK retailer, Kesa, said that lobbying on the shorting issue on behalf of companies across the spectrum was being channeled through the Investor Relations Society. He said the society had been in talks with the FSA and was trying to get “greater clarity” on what shorting was being used for - in stocks across the board. According to information from Data Explorer 6.26% of the Kesa’s market capitalisation was on loan on Friday. The British Retail Consortium however, had not been approached on the subject. When asked if any members had approached British retailer consortium for assistance on the ban, a spokesperson said: “No. This is outside our area.”

Real Estate and construction industry sources said that they would be surprised if the ban were extended and had not heard evidence of the restriction being applied to the sector.

Three real estate bankers said they could understand the rational for the short selling ban on banks, but were not sure the same argument could be applied to commercial real estate companies and house builders. With the commercial real estate sector one added there was no evidence of financial distress for any of the major players.

Dave Butler, head of external affairs at Reita, a trade body representing UK real estate investment trusts (REITs), meanwhile said that it would welcome the extension of the shorting ban to commercial property stocks but would not actively lobby for it. Butler said that shorting was more of a concern in the US, where its counterpart Nareit has been in discussions with the SEC, taking the stance that real estate stocks should be considered part of the financial services sector. In contrast to Nareit, Reita does not consider real estate stocks to be part of financial services, although Butler said the two were inextricably linked.

Butler said that shorting was more of a “worrying distraction” than a fundamental problem for UK listed property companies. “It causes volatility and distracts from the fundamental strengths of the sector,” he said. “But property companies are not as dependent on short-term share prices as financial services groups.” Confidence in the latter could be easily undermined by falling share prices, which affect their credit rating and ability to borrow, he reasoned, whereas property groups tend to have long-term funding arrangements, typically with 5-year rates.

Butler also differentiated commercial property companies from the heavily shorted UK-listed homebuilders. “Our business model is very different,” he said. “They are dependent on short term money and their model is: build and sell. Ours is: own and maintain.”

Butler said that Reita had not engaged in discussions with any other industry bodies with regards to lobbying for a ban extension.

A source familiar with another well-shorted UK stock, Shaftesbury, said no conversations were going on among REITs. “These things are decided by the FSA. It’s been well-exposed and there’s nothing to add,” the source said.

The Homebuilders federation said: “It’s something that members will handle themselves, as it is to do with their share price. It is effecting some of our members more than others. So we are going to step out of this one.“

The Federation said it had “no knowledge that any of our members have asked us to co-ordinate a sector-wide lobbying effort, similar to the way lobbied the government on stamp duty.“

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