Australia's financial regulator, ASIC has decided to extend their ban on the short selling of financial stocks for the third time, making it the only country (with the exception of Holland) to maintain a ban on covered short selling.
Citing ongoing market volatility, and potential aggressive and predatory practices by short sellers, ASIC acknowledged that it was prepared allow the market to forgo some price discovery and market efficiency.
ASIC advised that it had discussed the situation with regulators elsewhere, but their decision (although not unexpected) is at odds with the actions of regulators in the US, UK and Hong Kong, who have all lifted the bans, or in the case of Hong Kong, not implemented a ban in the first place.
At ASIC's summer school held earlier this week, representatives of all three offshore regulators indicated that their bans were either no longer necessary, or in the case of Hong Kong, never required.
ASIC also advised it was remaining vigilant to conduct which allowed the ban to be circumvented, presumably referring to the use of derivative and arbitrage strategies. However, as there are widespread exemptions to the ban for market makers and option strategies, this seems to be contradictory.
ASIC's current reporting regime for the reporting only of gross short sales also remains in place, leaving the market no better informed as to the real extent of short selling taking place, and therefore allowing rumour and inuendo to continue.
