This comes in the wake of the Bank of England making assurances of support to HBOS after 20 per cent, amounting to Â£3 billion, was wiped off its value in a frenzied period of trading.
The City was responding to fears that that the bank was in trouble; partially fuelled by recent troubles in global financial markets.
However the FSA has caught hold of rumours of potential short-sellers, meaning those who sell shares in the hope to buy them back at a much lower price after rumours affect a company's position.
The FSA said that whilst the rumours were completely unfounded it would not tolerate those engaged with 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," Sally Dewar, the FSA's managing director of wholesale and institutional markets, said to the Independent.
HBoS has refuted any suggestion of mal practice, but both the FSA and the Bank will want to move quickly to alleviate any more jitters surrounding another major UK financial institution.