AIMA concerned over short selling ban

Kim Ivey

The Alternative Investment Management Association (AIMA) has expressed concerns that the ban on short selling instituted by the Australian Securities and InvestmentsCommission (ASIC) will worsen market volatility instead of restoring financial stability.

AIMA chairman Kim Ivey said: “While AIMA is supportive of regulators’ efforts around the world to restore stability to financial markets, we are concerned this total ban on short selling in Australia may actually have the opposite effect.

“We’re concerned that, without any short selling, price discovery for many ASX (Australian Securities Exchange) stocks is actually in disequilibrium and as a consequence, many stocks will exhibit increased volatility.”

AIMA said in a statement that it believed that ASIC acted in haste and without consultation by banning all short selling, extending beyond the actions of the United States Securities and Exchange Commission (SEC) and Financial Services Authority (FSA) in the United Kingdom. The SEC and FSA only banned naked short selling and restricted other forms of short selling in a limited number of financial stocks.

“We can expect severe outcomes from this short selling ban — investors who want to adopt capital protection strategies either through short selling or through derivative instruments such as CFDs (contracts for difference) are unable to do so. Companies [that] want to raise equity funds will be unable to do so… equity capital raising is now either on a ‘best efforts’ basis or at a complete standstill in Australia.”

AIMA urged ASIC to speed up its market manipulation review and separate legitimate short selling activities from the illegal act of spreading market rumours.

AIMA is working to convince regulators around the world to restore short selling in the market.