Senator Nick Sherry, Minister for Superannuation and Corporate Law, has announced the details of the final Bill, to be introduced into Parliament this week, to better regulate the use of short selling in the Australian financial market.
"There are no easy solutions or quick fixes to the global financial crisis, but we are taking decisive action to protect our markets, especially from trading practices that may involve manipulation or abuses."
"We've conducted an extensive consultation with industry, the Australian Stock Exchange (ASX) and the regulator Australian Securities and Investments Commission (ASIC), and the final Bill includes some important changes from the Exposure Draft that will ensure we have total transparency in the use of covered short selling," said Minister Sherry.
The Corporations Amendment (Short Selling) Bill 2008 includes:
- a legislative ban on naked short selling;
- a comprehensive disclosure regime for permitted covered short selling, including placing a positive obligation on brokers to enquire of a client whether a sale is a covered short sale when a client places an order, and a direct obligation on market operators to publicly disclose short selling information they obtain from brokers;
- an expansion of ASIC's powers to enable it to impose regulations on transactions that are substantially similar in effect to short selling and a clarification beyond doubt of ASIC's general powers by explicitly stating that ASIC has the power to limit, prohibit or impose additional conditions on short selling transactions; and
- a legislative confirmation of ASIC's previous declarations temporarily banning covered short selling and requiring the disclosure of permitted covered short sales to provide both ASIC and industry participants with certainty over the scope of ASIC's powers in relation to short selling.
"The Government has taken the decision to put in place a blanket ban on naked short selling, which is short selling where the seller doesn't own, hasn't borrowed and may not even have a pathway to get the shares they are selling."
"Naked short selling is currently banned under actions taken by ASIC and the ASX, and 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," Minister Sherry said.
ASIC will hold the power to grant exemptions from the naked short selling prohibition in the 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."
"The Bill fills a gap in law, present since 2001. It will boost transparency, enhance the integrity of Australia's markets and complement action already taken to strengthen our financial system through the national regulation of credit and financial services and forthcoming action on credit rating agencies and research houses".
"The details of the timing of the disclosure of the short selling data will be resolved in the Regulations, which we will write in close coordination with industry. I am alive to the concern that the data needs to be disclosed in a way that balances transparency with the protection of the intellectual property and other interests of the funds management sector, and this will be taken into consideration," Minister Sherry said.