IFSA supports call for review of short selling

The Investment and Financial Services Association (IFSA) has responded to an Australian Securities Exchange (ASX) consultation paper, about short selling and stock lending, with a submission supporting the review.

IFSA chief executive Richard Gilbert said, in reference to the consultation paper, that short selling is a long established investment activity and an integral part of global capital markets.

He said it contributes to market liquidity and assists to ensure market price efficiency for both the underlying securities and a variety of derivative contracts that are used for risk management and hedging.

“Active investors borrow to short sell securities they believe are overvalued and take long positions in securities they believe are undervalued. Active investment management also plays an important role in effective price discovery.

“Our submission identifies several measures that we believe will improve disclosure and transparency, if adopted,” he said.

IFSA said in a statement that it supports the disclosure of all short sale positions directly to the market supervisor, the ASX, on a disaggregated and timely basis in order to promote market integrity and assist surveillance of the market.

“However, on the matter of ‘vote renting’, whereby an investor borrows shares in order to vote on a transaction to secure a desired outcome, IFSA is firmly opposed.

“To this end, IFSA is in the process of preparing an industry circular reaffirming IFSA’s position which also includes a series of best practice recommendations to minimize the risks of vote renting for our members,” Gilbert said.