Government to ban naked short selling

The Government will introduce a bill into Parliament this week to put in place a blanket ban on naked short selling.

Naked short selling is currently banned under actions taken by the Australian Securities and Investments Commission and the Australian Securities Exchange. Senator Sherry, Minister for Superannuation and Corporate Law, said the Government “strongly feels that it is in the interest of Australian retail investors and the companies they own that it stays banned”.

“Such selling has a higher risk of settlement failure and may distort the operation of financial markets by causing increased price volatility and potentially facilitating market manipulation.”

Sherry said the Government is taking action “to protect our markets, especially from trading practices that may involve manipulation or abuses”.

He said the Government had consulted with industry, the Australian Stock Exchange and the Australian Securities and Investments Commission (ASIC) on the matter.

The Corporations Amendment (Short Selling) Bill 2008 includes a legislative ban on naked short selling and a comprehensive disclosure regime for permitted covered short selling.

ASIC’s powers will also be extended to enable it to impose regulations on transactions that are “substantially similar in effect to short selling”.

Sherry said ASIC will hold the power to grant exemptions from the naked short selling prohibition in “limited cases where some non-speculative naked short sales are necessary to ensure the ordinary operation of the market”.

“On disclosure, the current lack of any real, legislatively backed and system-wide disclosure of covered short selling has created uncertainty and is damaging to market confidence, which has been amplified by the current market volatility,” Sherry said.

The details of the timing of the disclosure of the short selling data will be resolved in the regulations, which will be written in co-operation with the industry, Sherry said.

“I am alive to the concern that the data needs to be disclosed in a way that balances transparency with the protection of intellectual property and other interests of the funds management sector, and this will be taken into consideration,” Sherry said.