A prohibition was put in place by asic in 2008 gfc era but the bankers and market makers kicked up a stink .Some exceptions were/are allowed and I note some of it is related to eto's etc . Your correct in that they still need to borrow stock but only at end of day under some headings ????. I would need to much time to go through every detail and speak to market participants to understand what loop holes they do or don't use . RG 196 , from this ; http://www.asic.gov.au/asic/asic.nsf/byheadline/Regulatory+guides?openDocument
I think fpm's hedger is city bank ?
Is city bank a market maker as this may apply ?; Hedging risk from market making activities [CO 09/774] A short sale of a security or managed investment product that is a constituent of the S&P/ASX 300 by a market maker to hedge risk from its market making activities. The market maker must hold (or be exempt from holding) an AFS licence. In addition, at the time of sale, the market maker must believe on reasonable grounds that a securities lending arrangement can be put in place to allow delivery and, by the end of each day, acquire or borrow sufficient products to ensure it can deliver all products sold on the day delivery is due. See RG 196.59–RG 196.63.
Table 1 is where the exceptions are under heading : Situations in which naked short selling is permitted .
I think u'd be safe with speccies but as for big caps read above and the links . It is a long read .
