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Thinking | 22 January 2009

Covered Short Selling ban further explained

Further to our update ‘Covered short selling ban extended’, the Australian Securities and Investments Commission (ASIC) yesterday announced a further extension of its ban on covered short selling of financial securities until Friday 6 March 2009. This was also in addition to its extension made on 18 November 2008 which was due to expire on 27 January 2009.

Similar jurisdictions have already lifted their ban (including the UK) and it was expected that Australia would do the same. However the recent increase in volatility in financial stocks has left ASIC hesitant to lift the ban before it could “assess if the resumption of short selling in the UK was coincidental or contributed to this volatility and if so, to what extent”, and “assess the markets more carefully to determine the role of short selling and aggressive or predatory practices and whether there are similar risks for Australia when the ban is lifted.”


ASIC reports that it intends to keep its intervention to an absolute minimum and continues to consult with relevant stakeholders and other regulators in Australia and overseas. Throughout its review ASIC will consider the precise date for lifting the ban, possibly earlier than 6 March 2009. The current position as set out by ASIC is:

 

  • covered short selling of financial securities will continue to be banned
  • covered short selling of non-financial securities is unaffected and will still be permitted
  • the daily reporting of gross short sales will continue as will the publication to the market of aggregate short sales by security the day after trading and
  • ASIC requires strict compliance with the ban on naked short selling as outlined in RG196.

 

We will provide you with further updates as these matters develop.

 

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