The Australian Securities and Investment Commission (ASIC)
joined its US and European counterparts in announcing new measures
in relation to short selling in an effort to restore investor
confidence and maintain the fair and orderly operation of the
The new measures were announced on 19 September 2008 in
consultation and co-operation with the Australian Securities
Exchange (ASX), and further clarified by ASIC on 21 September 2008.
They apply from the opening of the market today, Monday 22
The measures, which have been described by ASIC Chairman Mr Tony
D'Aloisio as 'circuit-breakers', include:
a ban on all naked short selling transactions From the opening of trading today, ASX will remove all
securities from its Approved Short Sale Products List –
the list of stocks approved for naked short selling. This means
that the exemption afforded by s1020B(4)(e) of the Corporations
Act 2001 (Cth) no longer applies.
a ban on all covered short selling transactions
(subject to a limited authorised market-maker exception) Covered short sales of securities, which were previously
authorised under s1020B(4)(c) or (d) of the Corporations Act, will
not be permitted, except for those transactions entered into by ASX
Approved Market Makers or Warrant Market Makers.
reporting and disclosure requirements for permitted
covered short sales A market participant must, at no later than 9:00am on each
trading day, inform the market operator of their net covered short
positions as at 7:00pm on the previous trading day.
In addition, a market participant must before selling a s1020B
product on behalf of another person, ask that person whether the
sale would be a short sale to which the reporting and disclosure
requirements apply. The market participant must record the answer
to this question in written or electronic form before selling the
These measures have been introduced to ensure that the
restrictions imposed by other international regulators do not cause
unwarranted activity on the Australian market.
ASIC will reassess the position for covered short sales for
non-financial stocks in 30 days. In the case of
financial stocks, the review period will reflect the time
limits imposed by other regulators, such as the UK Financial
Services Authority (16 January 2009) and US Securities and Exchange
Commission (1 October 2008 unless extended). ASIC has also
indicated that the proposals will be in place until the
Government's proposed short selling legislation.
While the Australian measures are similar to those imposed by
other regulators, the following features are distinct:
the prohibitions are not limited to financial stocks
which was the approach taken by the UK Financial Services Authority
the reference to 'securities' and the narrow definition
of 'securities lending arrangements' in ASIC Class Order
08/751 and 08/752 may mean that listed funds and derivatives or
other hybrid instruments that only involve synthetic obligations
may not be subject to these new measures and
the implications for counterparties of ASX Approved Market
Makers is unclear.
ASIC has indicated that it will work with industry on
transitional issues affecting bona fide market transactions.
This morning, ASIC also advised market participants that it
would provide a no action letter for hedging of existing positions
of market makers arising from their client business. The terms of
that letter are expected to be settled today.
In conjunction with its earlier class order simply requiring the
reporting covered short sales, ASIC also issued Regulatory
Guide 196 – Short selling: Overview of s1020B which
explains the regulation of short selling in Australia under s1020B
of the Corporations Act 2001 (Cth).
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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In the years following the global financial crisis of 2008 many Australian investors lost their life savings as financial products failed and the Australian Stock Exchange shed over 3,000 points.
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