THE Financial Services Auth- ority could tighten its rules on short-selling, after complaints from investors in the AIM-listed Room Service Group.

Stockbrokers, understood to include Evolution Beeson Gregory, sold stock short in Room Service Group (RSG) after its shares were released from suspension at the end of September.

Shareholders had anticipated a rescue deal for RSG, a shell company. However, the shares were suspended again at the end of October after the rescue deal and a possible rights issue fell through.

The collapse left investors unable to retrieve their shares, as the brokers were unable to buy enough stock in the market to close down their positions to satisfy clients.

Yesterday the FSA said that it was trying to sort out the situation, and added that there may be a case for revisiting the rules governing short-selling.

Earlier this year the FSA decided against rules that would curtail short-selling and said that it was an integral part of the London market. A spokesman said: “This particular situation does raise some issues, but our position about short-selling overall has not changed.”

The London Stock Exchange is also looking at the situation in relation to RSG. Its shares fell almost 80 per cent from their high of 29p in early October until trading was suspended on October 22, when a planned loan fell through. The company reported no sales turnover in the six months to June 30.

Shareholders complained that they had not been able to settle their trades, and have instructed Edwin Coe, the law firm, to look into the situation.

An LSE spokesman said that the shareholders’ complaints involved Evolution’s alleged role in the short-selling of RSG’s shares. “We share the concerns of the market about the possible impact of this settlement backlog,” he said. “We are taking the matter very seriously and are working closely with the FSA on this one.”

The Room Service Shareholders’ Action Group says it is furious at the activity of the brokers, which it claims started short selling as demand for the shares stepped up in October. Evolution has refused to comment.