FYI, although I am not one of those caught up in the naked short selling, I am one affected by the influence it can have on the market, so I have sent the following communication to Bill Shorten. I will also pass the letter on various newspapers.
Dear Minister Shorten,
Re: Naked Short Selling of company shares on the Australian Stock Exchange
Biota Holdings (ASX symbol BTA) ceased trading on the ASX at the close of trading on 30 October 2012. Shares in BTA were then converted to Biota Pharmaceuticals (NASDAQ symbol BOTA) shares.
The ceasing of trading was an exceptional event that exposed "Naked Short Selling" of shares that is not normally detected by ASIC or the ASX.
In normal trading there is a 3 day settlement period which allows a seller on day one to buy back shares on day two, which may result in a net transfer of zero shares on day three. The ASX and ASIC are not normally able to detect cases where a seller does not actually hold shares, but they confidently report that there is no "Naked Short Selling".
A number purchasers of shares on 30 October 2012 in Biota Holdings (ASX symbol BTA) have been unable to receive share certificates because the seller(s) failed to meet their delivery obligation. The most likely reason for the sellers to being unable to settle is that they did not actually hold any BTA shares (whether their own shares, or "borrowed").
My understanding is that Commonwealth Securities has written to those who have been unable to receive shares that they purchased, explaining that the counter party has been unable to produce the shares, and that Commonwealth Securities is offering free trades as a good will gesture. I understand that other brokers may also be involved, such as Bell Potter. Clearly the seller(s) did not have the shares in their possession at the time of selling. It is therefore "Naked Short Selling".
My own personal experience allows me to deduce that naked short selling could well be common on the ASX.
My understanding is that "Naked Short Selling" has been banned (with some minor exceptions) since 2008. I have not noted any occurrence of a prosecution of "Naked Short Selling".
1. Could you please confirm that "Naked Short Selling" is banned (subject to some exceptions - not relevant in the case of BTA).
2. Could you please confirm that ASIC will be launching an an investigation and prosecution of the parties involved in the the "Naked Short Selling" of BTA shares.
3. Could you please determine how ASIC, or ASX, can routinely determine whether "Naked Short Selling" occurs. Please note when shares are sold, no concrete evidence is required that you actually own shares you are selling - your broker will simply ask you whether you own the shares. An organisation with direct market access does not have to even answer the question!
Yours Sincerely,
BTA Price at posting:
0.0¢ Sentiment: None Disclosure: Held
