Rules to control speculative share trades known as short-selling could be introduced in the UK, Prime Minister Gordon Brown has said.

“When groups of people are exploiting a difficult economic situation, it is right to stop short-selling,” he said.

The Financial Services Authority placed a four-month ban on the short-selling of UK financial shares last week.

Short-sellers “borrow” shares and sell them, hoping to profit by buying the shares back later at a lower price.

Investors who carry out such short-selling have been accused of aggressively targeting banks such as HBOS.

“We’ll be reviewing over the next four months, and I think you’ll find new rules for the future” Gordon Brown

Last week HBOS agreed to be taken over by its rival Lloyds TSB following a dramatic fall in its share price.

List extended

The FSA introduced its temporary ban on 19 September because it was concerned short-selling was exacerbating falls in some share prices.

Initially 32 banks and other key financial institutions were included on the list, and since then this has been extended to include other financial stocks.

Speaking on BBC Radio 4′s Today programme, Mr Brown said it was wrong that “good companies” could be brought down by “speculative activities” in the financial markets.

“We’ll be reviewing over the next four months and I think you’ll find new rules for the future.”

Battered banks

This week, the British hedge fund manager, Man Group, asked for its shares to be included in the FSA’s list.

Its share price fell steeply on Tuesday, partly as a result of the company being left off the list of shares subject to the short-selling ban, said traders.

The FSA has also ordered hedge funds and other institutions to reveal if they are significant short-sellers in the UK’s battered banking sector.

As a result, New York-based hedge fund manager John Paulson has been revealed as one of the biggest short-sellers.

His firm, Paulson & Co, has made bets against almost all of Britain’s biggest banks – Barclays, Royal Bank of Scotland, Lloyds TSB and HBOS.

The firm defended its actions, saying that while it empathised with financial firms that might be in difficulties, its main aim was to make a profit for its investors whether stock markets were rising or falling.

Mr Paulson is said to have made a personal fortune of more than £1.6bn ($3bn) by betting against the American mortgage market last year.

News reported by The BBC