Thinking | 23 October 2008

Covered Short Selling ban extended

As we recently reported in our update Naked and Covered Short Selling Banned, the Australian Securities and Investments Commission (ASIC) announced on 21 September that covered short selling would be banned to be reassessed in 30 days to possibly re-allow the ban for non-financial stocks.

Following the 30 day review, ASIC announced on 21 October 2008 that it would extend this ban on covered short selling for non-financial securities for a further 28 days until 18 November 2008, when it expects the ban to be lifted.

The ban on financial stocks will continue until 27 January 2009, and while the US has lifted its bans, other jurisdictions such as the UK are maintaining bans on financial stocks. According to ASIC, the various Government actions recently introduced are ‘yet to work through the financial system’ and that ‘the financial markets are still fragile’ such that ‘the reopening of covered short sales should be done in stages and in a measured way over an extended period.’

Financial stocks include entities in the S&P/ASX 200 Financial Index (which include property trusts and five other APRA supervised listed entities not in this index).

The ASIC Class Order 08/751 which outlined new disclosure requirements for covered short selling is expected to apply from the time the ban is lifted. An announcement is this regard is expected from ASIC this week. These requirements are expected to include that a broker must ask their client if a transaction is a covered short sale before taking the order. A customer will then be obliged to inform the broker whether it is and if so the broker must notify the ASX.

ASIC is expected to issue a further release in relation to lifting the ban on or around 12 November 2008.

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

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Harry New

Harry leads our financial services team and focuses extensively on financial services law and corporate advisory.

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