Short selling disclosure regime unveiled

The Australian Securities and Investments Commission (ASIC) and the Australian Securities Exchange (ASX) have created a new disclosure system for the reporting of short sales.

The new arrangements will be put in place when the ban is lifted on November 19 and will “complement” the disclosure regime for securities lending proposed by the Reserve Bank of Australia, ASIC said.

ASIC said the disclosure and reporting arrangements would provide additional transparency on the amount of short selling in Australian securities to market players, ASIC and the ASX.

ASIC said it, along with the ASX, would use the data collected in addition with other information about trading and market positions to “assist in detecting market manipulation and other non-compliance with existing obligations”.

Under the new arrangements, trading participants must have a system in place to record whether a sell order from a client is a sale of securities they already own (long sale), a covered short sale (short sale) or a covered short sale that falls under one of the exemptions to the ban (exempt short).

The new arrangements will see the creation of daily reports on short selling. Trading participants will report to the ASX each business day all short sales, but not exempt short sales (for which the short selling ban remains in place), or naked short sales that arise from the exercise of exchange-traded options.

ASIC said the reporting arrangement would initially be a daily report submitted by 9am, capturing all short sales executed up to 7pm on the previous trading day. The ASX will also have in place a system to capture covered short sales reports.

Trading participants will need to inform the ASX that they have advised their clients to disclose all short sales, and they will also be required to determine and record whether a sell order is for a long, short or exempt short sale.

ASIC and the ASX are working with industry groups to develop standards that will ensure this information is appropriately recorded.

“The method and timing of report lodgement will remain the same as it is now for the reporting of covered short sales that are exempt from the ban,” ASIC said.

The new report will not include details of unsettled short positions opened on a day prior to the reporting day, but will include details of all short sales executed in the 24 hours up until 7pm on the relevant day.

The ASX will also create a market report that will be released after 9am each trading day. The report will show, by security, the total volume of short sales executed on the previous trading day, including exempt short sales in financial sector securities.