Government drafts short selling laws September 23, 2008 - 4:31PM
The federal government has released draft laws that will require future covered short sale transactions on financial markets to be disclosed.
Financial regulators put a total ban on short selling yesterday for a four-week period in an attempt to curb market volatility caused by the global financial market crisis.
"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,'' Minister for Superannuation and Corporate Law Senator Nick Sherry said in a statement.
"The Reserve Bank supports this position.''
He said the country's 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,'' he said. "They have assessed the situation and decided short selling, sometimes a mechanism for manipulation, was not currently in the interests of the Australian market.''
He said when conditions calm, the Australian Securities and Investment Commission (ASIC) would assess the situation and may determine that it was 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,'' he said.
"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.''
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,'' Senator Sherry said. "This measure will promote confidence in Australian capital markets by minimising speculation about the activity of short sellers.''
