---

Financial Services Bill

But in a way there are two types of short selling. There is naked short selling, when someone does not hold the shares, or has no coverage for selling the shares in the market, and the situation when someone borrows shares and there is some cover to minimise settlement risk. The right hon. Gentleman's argument was about the governance of pension funds rather than the merits or otherwise of short-selling strategies in the market, and I thought it did not quite get to the point. As a consequence of interest in short selling, quite a lot of work has been done on the possible impact of various short-selling strategies on the underlying markets, and on whether short selling itself is a legitimate strategy for investment managers. On a couple of occasions during Treasury questions, the Minister has defended short selling as a means of improving liquidity in the market, reducing transaction costs and making markets function more effectively. A number of pension funds benefit from the strategy because they have investments in hedge funds that engage in such activities. At the peak of trading in 2008, pension funds apparently earned about £600,000 a day from the fees that they received in return for lending their stock.