Short selling ban hits markets

Nick Sherry

The Federal Government has signalled that it will introduce further legislation to back the Australian Securities and Investments Commission (ASIC) ban on both naked and covered short-selling if it has to.

The ban applies from the opening of business on the Australian Securities Exchange this morning.

The promise, made by Minister for Superannuation and Corporate Law Senator Nick Sherry, came at the same time ASIC broke new ground in global regulatory co-operation by moving to harmonise its ban on short-selling arrangements with those of both its US and United Kingdom counterparts.

ASIC has said it will work with the industry on any transitional issues affecting bona fide market transactions.

Senator Sherry said, however, that the ASIC ban on covered short selling, announced on Sunday, had been necessary due to the relatively small size and structure of the Australian market.

“The Government supports ASIC’s move and is advised by Treasury that ASIC has adequate powers under existing legislation to support today’s action,” Sherry said on Sunday.

“Should any further legislative support be needed, the Government will introduce any supplementary legislative provisions that may be necessary to ensure that the measures are fully effective,” the minister said.

For its part, ASIC announced late on Friday a ban on naked short selling and then on Sunday extended that ban to cover short selling on the basis that similar moves had been put in place by France, Germany, Switzerland, Ireland and Canada.

The ASIC ban on short selling will remain in place for at least 30 days and the only exemptions will occur with respect to limited authorised market makers.

ASIC chairman Tony D’Aloisio said that while the regulator recognised there was a legitimate place for short selling in markets, such as assisting with price discovery, the current climate dictated the need for a circuit breaker.

“Our measures do that, as they will operate for a limited time and in the case of non-financial stocks, will be reviewed in 30 days,” he said. “In the case of financial stocks, the review will be in line with the time limits imposed by other international regulators, such as the US and the UK.”