With the Australian ban on covered short selling of financial stocks due to expire by Friday 6th March, speculation is mounting that it will be extended further with ongoing weakness and volatility giving the ban's proponents additional ammunition.
David Murray, former CEO of the Commonwealth Bank, and now heading up the government's Future Fund, has been reported as supporting an extension of the ban. At the same time the Dutch regulator, AFM, has extended their ban on the shorting of financials until June after ING and Aegon came under renewed pressure.
The hard facts are that financial stocks in Australia have not been shown to have been protected by the ban while it has been in place. This leads detractors of the ban to claim that the ban is a populist knee jerk reaction which is damaging price discovery, (otherwise known as letting the market dictate the value of a stock) liquidity and Australia's reputation as a serious financial centre.
At the same time they point out that as there are significant exclusions to the ban (market makers, derivatives etc) it is not being even handed. We expect the debate to increase over the next week, and, whatever the regulator's decision, to leave one side or the other decidedly unhappy.
