The Australian Securities and Investments Commission (ASIC) has
provided further clarification on its prohibition on short
A summary of ASIC's announcements and related clarifications
since Friday 19 September 2008, include:
1. An extension to the prohibition of covered short sales
Class order 08/753: Variation to Class Order 08/751,
which came into effect on 22 September 2008, corrects the drafting
anomaly in C0 08/751 by extending the prohibition on covered short
sales to managed investment products and stapled securities. The
prohibition includes covered short sales of securities, managed
investment products and stapled securities, subject to the market
makers exception. The prohibition does not currently extend to the
short sale of derivatives.
2. Hedging for existing positions
ASIC indicated it will issue no action letter to certain market
participants who may need to hedge exposures under obligations
entered into before 22 September 2008.
3. Dual Listed entities
ASIC provided relief to persons engaging in arbitrage
transactions in relation to dual listed securities to make covered
short sales of the relevant securities in Australia.
4. All exchange-traded options (ETOs)
ASIC provided relief for sales from the exercise of ETOs issued
before or after 22 September 2008.
5. Index arbitrage transactions
ASIC provided relief to index arbitrage transactions that are
unlikely to be a mechanism for market abuse.
6. Market Makers
In line with the decisions of its international counterparts,
ASIC has widened the exemption given to market makers for
transactions that satisfy the requirements set out by ASIC. As a
result , market makers will be permitted to undertake certain
hedging certain OTC equity swaps
guaranteeing VWAP to a client
hedgeing CFD products where the client holds a long
7. Covered short sales to manage risk associated with
underwriting corporate transactions
ASIC will grant relief where covered short sales occur to manage
risk associated with underwriting of dividend reinvestment plans,
share purchase plans and convertible bonds and hybrids.
Where covered short selling is permitted, the short selling
transaction must be disclosed in accordance with CO 08/751:
Disclosure of covered short sales. These requirements
apply to trading from 22 September 2008 and are equivalent to end
of trading day net short sale position disclosure under the ASX
Market Rules. However, unlike the US and UK requirements, the
Australian requirements are not subject to any monetary or holding
9. Reporting requirements for direct market access
ASIC will consider individual applications for a no-action
position. This will, in certain circumstances, relieve Direct
Market Access (DMA) service providers from enquiry obligations to
sell orders, where the DMA operator knows the client holds the
shares that are the subject of the automated trading. The no action
positions will be conditional on notifying clients that short sales
are not permitted.
10. Implications of the prohibitions for government
The short selling prohibitions and reporting and disclosure
requirements do not apply to government securities.
11. Securities subject to securities lending arrangement
Late on 24 September 2008, in line with the approach taken by
the UK Financial Services Authority, ASIC issued a 'no
action' position (ie. a statement that it will not take any
action) for a breach of short selling requirements in relation to
the sale of securities which are have been placed in a securities
lending program provided by an established securities owners
selling from stock lending portfolios where:
the sale is a bona fide sale transaction from the
the seller has full beneficial ownership in the securities or
held them as an institutional investor such as in a managed
investment scheme, superannuation fund, insurance company statutory
at the time of the sale, the seller is entitled to recall the
number of securities sold from the securities lending program
the seller recalls a sufficient number of securities from the
securities lending program before or as soon as practicable after
the sale (please see AD 08-23).
12. Draft Bill
Finally, an exposure draft of the Corporations Amendment (Short
Selling) Bill has been released for comment by 21 October 2008. A
copy of the bill can be accessed here.
ASIC will continue to monitor the market and may make relevant
changes to the exemptions. In particular, ASIC will monitor the use
of the exemptions in the CFD and options markets.
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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