On 13 November 2008 the Federal Government announced details of
the final Corporations Amendment (Short Selling) Bill 2008
(the Bill) which is designed to impose permanent
restrictions on short selling.
According to the Government, the objective of the Bill is to
increase transparency on the quantity of covered short sale
activity in Australian securities and to reduce the opportunities
for market abuse.
The key features of the Bill include:
a prohibition on naked short selling (ie, short selling by
entities who, at the time of selling, are neither the owner of the
securities nor have arrangements in place to meet their delivery
a clarification of the powers of the Australian Securities and
Investments Commission (ASIC) to monitor covered
short selling and impose regulations on transactions that have a
"substantially similar market effect" as short sales
under the Corporations Act 2001 (Cth)
a legislative confirmation of ASIC's previous declarations
in relation to short selling (ie, CO 08/751 and 08/752)
a comprehensive disclosure regime for permitted covered short
The new disclosure regime will impose some regulatory costs on
investors, brokers and market operators (ie, the Australian
Securities Exchange (ASX)) that are required to
collect and report information in relation to covered short
Under the new legislation, brokers will be required to query
whether a sale of securities is a covered short sale when a client
places a sell order and record the seller's answer in writing.
It will be an offence if a broker fails to make these inquiries.
Market operators will also be required to publicly disclose to the
market information they obtain from brokers in relation to short
Further details regarding the timing and manner of disclosure of
short selling information will be dealt with in the Regulations,
which are intended to be drafted in consultation with industry
The Government's decision to place a legislative ban on
naked short selling mirrors recent action taken by ASIC and the ASX
in September. The new legislation provides that ASIC will have the
power in certain circumstances to grant exemptions from the
prohibition on naked short selling where these types of short sales
are necessary to ensure the ordinary operation of the market.
ASIC also re-affirmed that it will lift its current ban on
covered short selling for non-financial securities from opening
trade on 19 November 2008 but will maintain the ban on financial
securities until at least 27 January 2009.
The ban on covered short selling was initially implemented by
ASIC on 22 September 2008 in response to similar moves by overseas
regulators including the US, UK, France, Germany, Switzerland,
Ireland and Canada. According to ASIC, its decision to maintain the
ban on covered short selling was primarily due to the ongoing
fragility of global financial markets.
The Bill has been referred to the Senate Economics Committee and
a report is due from the Committee on 27 November 2008.
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