U.K.'S FTSE 100 Surges Most Since 1987 on Short-Selling Rules

By Adam Haigh

Sept. 19 (Bloomberg) -- The U.K.'s FTSE 100 Index surged the most since 1987 after the regulator banned short selling of financial companies' shares, bucking a slump that has wiped out almost a quarter of its value this year. Barclays Plc soared 32 percent, Royal Bank of Scotland Group Plc rallied 42 percent, and Lloyds TSB Bank Plc climbed 35 percent. The Financial Services Authority in the U.K. yesterday banned short sales on stocks of financial firms until January 2009, where traders borrow shares from their broker that they then sell. If the price drops, they buy back the stock, return it to their broker and pocket the difference.

``It's been an extraordinary move,'' said Henk Potts, a London-based fund manager at Barclays Stockbrokers, which has about $45 billion. ``Clearly the market is hoping that the central banks' coordinated efforts have proved that they are using every weapon in their arsenal to calm the turmoil. The market is thinking that it's enough to see us sailing on calmer waters over the next few weeks,'' he added.

The benchmark FTSE 100 Index added 351.3, or 7.2 percent, to 5,231.3 at 12:00 p.m. in London. That was the steepest climb since October 21, 1987 when the index rallied 7.9 percent and closed at 1,943.8, according to FTSE Group. This followed the previous day of stock market collapses in what became known as Black Monday.


The index had earlier jumped as much as 8.3 percent to 5,286.50, the steepest gain since the benchmark was introduced on Jan. 3, 1984.

More than $1.2 trillion worth of investments had been wiped off the value of U.K. shares in 2008 before today with FTSE 100 tumbling 24 percent. Banks including Barclays and Royal Bank have been forced to raise capital as losses at financial companies of more than $229 billion across Europe eroded profits. The index slid below 5,000 for the first time since 2005 this week.

Barclays Jumps

The U.K. regulator now requires daily reporting of existing short positions in financial companies of more than 0.25 percent, it said in a statement yesterday after markets closed. The rules will remain in force until January 16, 2009.

Barclays, the U.K.'s third-biggest bank which had tumbled 39 percent this year before today, gained 32 percent to 396 pence. Royal Bank, the second-largest, rallied 42 percent to 230.5 pence, clawing back some of its 56 percent plunge in 2008. Lloyds TSB Group Plc, the bank that yesterday acquired British mortgage lender HBOS Plc, gained 35 percent to 319.75 pence. HSBC Holdings Plc, Europe's largest lender, rose 13 percent to 899.25.

`Shore up the Market'

``They are doing anything they possibly can to shore up the market,'' said Omer Bhatti, head sales trader at WorldSpreads Group Plc in London. ``These steps have never been taken before like this.'' he added.

Ireland's financial shares also rallied as its financial regulator also banned short selling of the country's banking stocks to ``ensure the orderly conduct of the market'' and takeover speculation fueled optimism.

Anglo Irish Banks Plc, the country's third-largest bank, rallied 33 percent to 5.786 euros, leading gains on the ISEQ index.

Bank of Ireland Plc gained 26 percent to 4.75 euros on speculation Banco Santander SA, Spain's biggest bank, may make a takeover bid. Officials at Bank of Ireland and Santander declined to comment on a report on Newstalk radio in Dublin.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net.