Thinking | 6 July 2010

Publication of short position reports commence

Background

In our Update of 8 October 2009 ‘Exposure draft on new short selling regulations’, we outlined the draft regulations which would require the reporting of positional short selling information.  On 27 November 2009, the draft regulations were registered in the Federal Register of Legislative Instruments as the Corporations Amendment Regulations 2009 (No. 8) (Regulations).  In accordance with the Regulations, the Australian Securities and Investments Commission (ASIC) commenced publishing short position reports on its website on 22 June 2010

Short selling is a strategy where a trader or investor sells a security that they do not own with the intention of buying it back in the future at a lower price.  The rationale behind providing positional short selling information on Australian Stock Exchange (ASX) listed companies is that it provides more information to the market and enhances transparency.  ASIC has commented that ‘short position reporting provides a snapshot indication of the bearish sentiment towards a particular stock at any point in time.’

Short position reports

From 1 June 2010, short sellers were required to start providing the size of their overall short positions to ASIC. Reports are required to be submitted:

  • on or before 9am on the third business day after a 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.

ASIC then collates this information and publishes it on its website four days after the reports are provided.

What am I required to do?

The obligation for short sellers to lodge short positions with ASIC commenced on 1 June 2010.  If a seller enters a short sale agreement or currently has a short position they must:

  • lodge a short position report or
  • authorise a submitting entity to lodge a short position report on their behalf.

ASIC has provided relief from the obligation to report for small short positions.  Class Order ‘CO 10/135’, exempts sellers from reporting a short position where the seller’s short position is less than or equal to:

  • $100,000, and
  • 0.01% of the total quantity of securities or products in the relevant class of securities or products.

Financial service providers wishing to become submitting entities must report to ASIC by means of the FIX Protocol.  If you wish to submit reports on behalf of your clients you must ensure that you have been authorised to do so.  You may wish to incorporate such an authorisation into your client service agreements.

Where an Australian short seller does not wish to use a submitting entity they may submit their own short position reports.  If an Australian short seller does not have an Australian Company Number (ACN) or Australian Registered Body Number (ARBN), or an overseas short seller does not have a SWIFT Bank Identifier Code (BIC), they must obtain a unique identifier before they can submit short position reports.

Failure to comply with the short selling reporting and disclosure requirements is an offence under the Corporations Act 2001.

The Hall & Wilcox Financial Services team has a strong understanding of the current 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.

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