ASIC spares banks short-term volatility
The Australian Bankers' Association (ABA) has come out in support of the decision by the Australian Securities and Investments Commission (ASIC) to extend the covered short-selling ban until March this year.
“The Australian Bankers' Association is pleased that ASIC has decided to extend the temporary ban on the short-selling of financial stocks in Australia. This is a prudent decision given the current volatility in the markets,” said the chief executive of the ABA, David Bell.
“The market reaction in the United Kingdom following the lifting of the ban by the British regulator was worrying. The risk of manipulative and destructive trading is a potential risk to financial stability. The ABA is pleased the regulator’s decision has taken into account all the relevant circumstances, and that it will review these circumstances over the coming weeks,” Bell said.
ASIC quoted increased overseas market instability as the reason for the extension of the ban. Bank of America stocks dropped 29 per cent yesterday, while Citigroup and JP Morgan all dropped by more than 20 per cent. British stocks dropped for the third day in a row.
ASIC said it was not yet in a position to assess whether the resumption of short-selling in the UK contributed to current market volatility and needed time to determine whether there will be a similar risk of increased volatility when the short-selling ban in Australia is lifted.
ASIC said it recognised short-selling as a legitimate mechanism of price discovery and liquidity and would keep its intervention to an absolute minimum. The regulator said it would keep the position under review, and may lift the ban earlier than March 6.
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