In another display of the confusion wracking the local share market, the corporate regulator has announced it will allow investors trading the difference between share prices on dual-listed stocks to make covered short sales.
The move by the Australian Securities and Investments Commission, together with the Australian Securities Exchange, largely affects funds trading in the dual-listed shares of top miners BHP Billiton and Rio Tinto.
In addition to dual-listed entities, traders hedging for pre-September 22 positions and index arbitrage options will be exempt from Sunday's blanket ban on short selling, according to a second release from the ASX today.
"Certain covered short sales made by market makers are exempt from the prohibition relating to covered short sales," the ASX said. "ASIC has determined to widen the relief for market makers in line with overseas decisions."
The market makers must hold an Australian financial services licence and the bets must be made to manage a trader's risk.
Australian regulators hurriedly banned short selling for a month, following the lead of its regulatory peers in the US and UK.
The latest clarifications come after consultation with the finance industry, the ASX noted.
ASIC's short-sale ban for at least one month sparked confusion on the local market yesterday, delaying the start of trade by one hour, with many in the trading industry saying that the regulator had gone too far.
"In some respects it's pretty sudden," said David Spry, research manager at stockbrokers FW Holst & Co, said of the ban. "It's a pretty major sort of change."
"You wonder if this is a knee-jerk reaction. We seem to be going more extreme than they're going in the US. The amount of interference going on in the short space of time without much consultation is quite upsetting for some."
Short selling, or the sale of borrowed stocks to profit from an expected fall in the share price, has been blamed for adding to the volatility in global sharemarkets, which are grappling with the fallout from the global credit crisis
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