The below Parliamentary question was asked by Lord Vinson on 2016-01-13.
To ask Her Majesty’s Government whether they will consider making it an offence to lend shares for short-selling without permission of the beneficial owners.
Lord O’Neill of Gatley
The short selling of securities is a legitimate and longstanding investment technique that can provide a positive contribution to efficient market functioning through supporting price formation and providing liquidity to markets.
It is already illegal to lend any property, including shares, without the consent of the beneficial owner. However, there are limited circumstances in which fund managers are able to lend shares on behalf of investors (including for purposes such as facilitating a short sale). Under the Financial Conduct Authority’s rules, fund managers are able to do so if they have explicitly set out that they will do this in fund documentation, including the prospectus. This documentation forms part of the contract, which the investors agree to when they invest in the fund. FCA supervisors monitor compliance with applicable rules in this regard. These existing rules allow the FCA to take action, where appropriate, if shares are lent without the permission of the beneficial owner.