A problem in many financial markets is that there is not enough short selling. The UK's Financial Services Authority, however, seems less confident that short sellers are essential if securities are to be accurately priced and may impose further restrictions on investors who sell short during a rights issue (a form of capital raising). The FSA argues that the volatility caused by such selling can be "particularly prejudicial to the interests of small investors". Yet a false market caused by insufficient short selling would be considerably worse.
A wave of recent share issues by UK banks has resulted in heavy falls in share prices amid dramatic volatility. Much of that has been blamed on investors selling short: i.e. selling shares they do not own with the intention of buying them back at a lower price.
