Thinking | 8 October 2009

Exposure draft on new short selling regulations

On 2 October 2009, the Federal Government released its exposure draft regulations (draft regulations) on short selling disclosure. Broadly, the draft regulations are proposed to be implemented in two tranches.

The first tranche relates to the reporting of transactional (gross) short selling information largely replicates the existing transactional reporting requirements under the Australian Securities and Investment Commission (ASIC) Class Order 08/751 and is scheduled to commence on or before 11 December 2009.

The second tranche of the regulations relates to reporting of positional (net) information is scheduled to commence on or before 1 April 2010. Some of the key reporting requirements under the draft regulations are summarised below.

Under the first tranche of the draft regulations, commencing on or before 11 December 2009:

  • sellers entering into covered short-selling arrangements pursuant to section 1020AB of the Corporations Act 2001 (Cth) (ie a short selling pursuant to a securities lending arrangement) must disclose certain information, including the number of products covered by the securities lending arrangement, a description of the short sold product (for examples ordinary shares, preference shares, units in managed investment schemes), and the name of the issuer of the product
  • the above information is to be disclosed to:
    • the Australian Financial Services Licensee (AFSL) (eg a broker) who arranges for the short selling at the time of entering into the agreement to short sell. The AFSL who arranges for the short selling must then disclose the transaction to the market operator (eg the Australian Stock Exchange) before 9am on the next business day after the arrangement was entered into or
    • if short selling is conducted by the seller on its own behalf, the market operator before 9am on the next business day after entering into an agreement to short sell and
  • the market operator is required to publicly disclose on its website, or any other source which is easily accessible by the public, information pertaining to the total number of products which had been short sold on the previous business day.

Under the second tranche of the draft regulations, commencing on or before 1 April 2010:

  • in addition to the particular disclosure items discussed in paragraph above, each seller must also disclose to ASIC their short position (the difference between the number of products that a person has that is less than the number of the products the person has an obligation to deliver) arising as a result of entering into the short selling arrangement
  • disclosure of short positions to ASIC is required to be made:
    • on or before 9am on the third business day after the short sale arrangement is entered into and
    • on each subsequent business day on which a short position exists, even if the short position has not changed
  • in respect of short positions which were entered into prior to the commencement of the draft regulations (commencement), sellers are required to disclose their short positions (calculated as at commencement) on or before the third business day after commencement and on each subsequent business day on which the short position persists
  • on each business day, ASIC must also publicly disclose information in relation to short positions that were provided to it on the previous business day and
  • it is expected that small short positions under a threshold to be specified by ASIC will be excluded from the disclosure requirements.

The draft regulations are currently open for consultation until 23 October 2009.

We will provide you with further updates on the draft regulations.

The Hall & Wilcox Financial Services team has a strong understanding of the challenges and issues that clients face in the financial services industry. The team provides original, timely and commercial advice based on the latest developments across all areas of the financial services sector.

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Harry New

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

John Bassilios

John has broad experience in financial services, funds management, blockchain, corporate and corporate law.

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