The city watchdog is investigating claims that certain traders profited on rumours of funding problems

The Financial Services Authority (FSA) has begun an investigation into possible market abuse after claims that speculation over the liquidity of certain financial institutions caused share prices to fall.

Shares in HBOS fell almost 20 percent in trading on Wednesday, March 19.

The FSA condemned the speculation and associated short selling.

Sally Dewar, managing director, wholesale and institutional markets, said: ‘There has been a series of completely unfounded rumours about UK financial institutions in the London market over the last few days, sometimes accompanied by short-selling. We will not tolerate market participants taking advantage of the current market conditions to commit abuse by spreading false rumours and dealing on the back of them.’

‘We remind market participants of the need to take extra care, in this market climate, to adhere to the market code of conduct.’

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