ASIC short selling response no reflection of share price movement

The chairman of the Australian Securities and Investments Commission (ASIC) has revealed that the recent ban on short selling had less to do with any negative impact on share markets than an opportunity to implement disclosure in the area.

Speaking to members of the Australian Corporate Lawyers Association, D’Aloisio said at the time of the regulator’s banning of short selling, “We could not see a cause and effect between short selling and downward [share] prices”.

“Yes, prices were going down; however, in many cases downward price reflected the market being hard on companies with high asset values and high gearing. Our judgement was that in that part of the cycle, short selling was not creating a disorderly market,” he said.

D’Aloisio said the regulator’s “main concern with covered short selling was disclosure”.

“We agreed with the ASX [Australian Securities Exchange] that covered short selling should be disclosed and the Government took that on as an issue for reform.”

However, D’Aloisio said the regulator’s move to temporarily ban covered short selling was the right action.

“We believe we were [correct], and with the benefit of hindsight, a significant part of the market thinks so as well.”

But D’Aloisio did admit the regulator’s approach was not without controversy, admitting that “unannounced sharp changes in the law are not good for markets”, and can in fact drive more loss of confidence. He also admitted that “it is not good for regulators to make decisions without consultation”, and that unintended consequences can and do occur as a result.

In regards to the regulation of hedge funds, D’Aloisio said that, over the coming months, ASIC would be consulting with industry to assess what additional steps should be taken.

On other matters, D’Aloisio said the regulator is now looking to deter those involved in insider trading and market manipulation by focusing on criminal proceedings above civil penalties, despite the standard of proof being higher with criminal proceedings.

He said investigations into so called ‘rumourtrage’, are ongoing. Since January 2008, the ASX has referred 86 matters to ASIC, with 48 under investigation, 18 involving in ongoing surveillance, while 20 have been closed (at this point) for insufficient evidence.