re: its not illegal - jon1 Good Question,
There are two types of short selling: covered and uncovered.
The ASX selects stocks on the allowable list for uncovered short selling mainly by market capitalisation and liquidity.
As I can not word this any better, the kind gentleman at the ASX has allowed me to copy his definition for your benefit.
Quote: "Short selling has two basic forms, covered short selling and uncovered short selling. The difference being that at the time of order entry, the covered trader has appropriate securities to his name (gained, say, through a borrowing arrangement) that can be presented for settlement whilst the uncovered trader does not have any securities to meet settlement commitments but will have by the time the settlement commitments become due (gained, say, through buying back on the market on the same day but at a lower price or by putting a borrowing agreement in place subsequent to order entry to cover the future (T+3) settlement commitment).
In the case of the covered trader, providing the borrowing arrangements give the trader a "presently exercisable and unconditional right" to the securities in question, the law technically deems that the trader is NOT short selling. It is quite legal for a broker to offer covered short selling of any security under these "covered" conditions. The client has effectively
converted an on-market short position to an off-market borrowing contract.
The list of Approved Securities for Short Selling relates to securities in which "uncovered" short selling is permitted on ASX. For these securities, providing the broker has received an appropriate margin from the trader, the broker can accept and enter uncovered sell orders on the expectation that the client will arrange for settlement commitments to be met. From the broker's perspective the risk of the client failing to meet the settlement obligations is offset by the margin held by the broker." End Quote
Source: Response to web submitted ASX contact email found at www.asx.com.au.
So it appears fine to use a broker offering stocks not on the list, which expands the shorting opportunities for those trading equities. The broker I have seen advertising this is Tricom.
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re: its not illegal - jon1 Good Question,There are two types of...
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