Key international securities body, the International Organisation of Securities Commissions (IOSCO), today released a report on its preferred international direction for the regulation of short selling, and again Australia is firmly in line with international best practice.
Senator Nick Sherry, Minister for Superannuation and Corporate Law, welcomed the report of the IOSCO Technical Committee, which sets out four principles for the effective regulation of short selling.
"The Rudd Government was one of the first Governments in the world to move on short selling regulation, and is still among the only Governments to have passed a legislative regime that ticks all of the IOSCO boxes."
"We acted early and passed national laws that permanently ban naked short selling and introduced a comprehensive disclosure regime for covered short selling, said Minister Sherry.
IOSCO's four principles are (i) having appropriate controls to reduce risk via a strict settlement discipline, (ii) enhancing the transparency of short selling activity, (iii) having an effective compliance and enforcement system, and (iv) not stifling market activities necessary for efficient market functioning.
"Australia's response fits neatly within IOSCO's four general principles for effective regulation of short selling."
"This is an example of where the Rudd Government consulted with international regulators to keep up to date with international developments, while adopting a response to suit Australian circumstances," Minister Sherry said.
IOSCO Principles
Principle 1:
Short selling should be subject to appropriate controls to reduce or minimise risks that could affect the orderly functioning and stability of financial markets.
Rudd Government action:
the Rudd Government has permanently banned naked short selling, a form of short selling with the highest settlement risk.
Principle 2:
Short selling should be subject to a reporting regime that provides timely information to the market or to market authorities.
Rudd Government action:
the Rudd Government has introduced a comprehensive disclosure regime for covered short selling. Treasury is currently publicly consulting on the details of the supporting Regulations.
Principle 3:
Short selling should be subject to an effective compliance and enforcement system.
Rudd Government action:
the Rudd Government has announced that the Australian Securities and Investments Commission (ASIC) will oversee compliance and enforcement of the new regime. ASIC has been given substantial extra powers to undertake this role and the new regime is supported by a positive obligation on traders and brokers and tough new penalties for non-disclosure.
ASIC also continues to participate in international regulatory forums such as IOSCO, where it sits on the IOSCO Technical Committee
Principle 4:
Short selling regulation should allow appropriate exceptions for certain types of transactions for efficient market functioning and development.
Rudd Government action:
Australia's new short selling regime, which includes a ban on naked short sales and strict disclosure of covered short sales, will allow for appropriate exceptions for certain types of transactions, where these are deemed necessary by ASIC for the efficient functioning of markets.