23 September 2008

Short Selling Exposure Bill Released

Senator Nick Sherry, Minister for Superannuation and Corporate Law, has today released the Government’s draft legislation to require the disclosure of covered short sale transactions on Australian financial markets.

The Corporations Amendment (Short Selling) Bill will be released for a four week exposure period in preparation for the possible future removal of the current halt on most types of covered short selling put in place by regulators from yesterday.

“As we have always said, the Government has no intention on putting in place a permanent legislative ban on legitimate covered short selling, which in normal conditions can add to the efficient operation of the market. The Reserve Bank supports this position.”

“In recent days, our key regulators have taken independent and prudent action, driven by quickly evolving international conditions and global cooperation between key regulators, to temporarily halt short selling.”

“The regulators have taken these steps because the last fortnight has seen great volatility in market conditions. They have assessed the situation and decided short selling, sometimes a mechanism for manipulation, was not currently in the interests of the Australian market.”

“When conditions calm, ASIC will assess the situation and may determine that it is appropriate to remove the current halt. The Government is taking the responsible step today of preparing for that outcome, with the release of a comprehensive covered short selling disclosure regime.”

“Whilst others are seeking to make political points by attacking our independent and internationally respected regulators, we are getting on with the job of managing the economy in tough circumstances,” said Minister Sherry.

The draft legislation will address any ambiguity around covered short selling and will require the disclosure of transactions where a seller has entered into a securities lending arrangement to cover a sale.

In particular, covered short sales would have to be disclosed by sellers to a financial services licensee who in turn would be required to disclose the position to the market operator. Financial services licensees trading on their own behalf will be required to disclose covered short sales directly to the market operator. It will be an offence if a seller or financial services licensee does not disclose details of a covered short sale.

“Australian investors will also be able to access details about the level of covered short sale activity in Australian securities. This measure will promote confidence in Australian capital markets by minimising speculation about the activity of short sellers,” said Minister Sherry.

The draft legislation will be supplemented by regulations covering more detailed aspects of disclosure requirements and will be able to reflect changes in markets and trading behaviour.

“At such time that ASIC re-allows limited covered short selling, clarity around covered sale transactions will increase market transparency, prevent market manipulation, assist regulator surveillance and enable compliance with continuous disclosure obligations – all critical steps to keep confidence high in the Australian market.”

“I would call on the financial services sector, who I congratulate on their quick and constructive response to ASIC’s recent decisions, to play a similar role in considering the draft Bill,” said Minister Sherry.

The draft legislation is open for public comment until 21 October 2008 to facilitate introduction of the legislation into Parliament before the end of the current session.

The draft legislation and associated exposure commentary is available for viewing at www.treasury.gov.au.