Short sellers lash out at 'unnecessary' regulations
Friday January 9, 2009, 11:00 am
Global corporate regulators have sparked an angry reaction from fund managers by moving to toughen the disclosure rules for short selling.
Short sellers, who profit from stock price falls, have been blamed for contributing to the collapse in global markets in recent months.
But industry groups in Australia, the UK and the US, who together manage $15 trillion in funds, have come out against the restrictions being proposed by the International Organisation of Securities Commissions (IOSC).
At the height of the global financial crisis last year, with share prices in freefall, world regulators imposed temporary bans on the practice of short-selling.
Governments were worried a small number of traders were abusing the practice and acting unethically to make a profit at a time when vulnerable global markets could ill-afford the behaviour.
Now, financial associations in three countries have joined forces, warning their industry will be damaged if market regulators go ahead with plans to publish detailed information on short selling trading positions.
Richard Gilbert, chief executive of Australia's Investment and Financial Services Association (IFSA), says regulators are in danger of over-reacting..
"This market got into trouble for reasons other than short-selling. The debt binge has got this market into trouble, they're the macro issues around which short-selling has been the recipient of adverse outcomes," he said.
'Important contributors Mr Gilbert says it's easy to attack short sellers, but he says they make an important contribution to the market.
"There is more liquidity, and that's important that price happens quickly. Look, superannuation funds had engaged fund managers for a long time in order to get the benefits of short-selling," he said.
The American Investment Company Institute's senior counsel Ari Burstein says investment funds that use short selling have a right to keep the details of their investments confidential.
"If the public and certain market participants find out the holdings of large institutional investment managers, they can use that information to front run a fund to the detriment of funds' shareholders," he said.
Back in Australia the corporate watchdog, the Australian Securities and Investment Commission (ASIC), has just announced it's extending its temporary ban on short selling.
The Minister for Superannuation and Corporate Law, Senator Nick Sherry, says he backs the regulator's move.
"We've acted quickly to legislate and require the disclosure of short-selling. Other countries are still developing their short-selling regime and the way in which it will be disclosed, so Australia is actually ahead of the game in respect to disclosure," he said.
"But the issue for some of the interest groups is the timing of that disclosure. Now, we'll take into account their arguments, ASIC will take into account their arguments when the short selling disclosure regime is finalised."
Mr Gilbert says regulators should be provided with short selling positions soon after they are taken. But he argues the public must not get that information for at least two to four weeks.
Senator Sherry disagrees.
"I think what is paramount in the current circumstances is market stability," he said.
"The various views of the various vested interests are legitimate, but it is the national interest that will be uppermost in our mind when finalising these regulations."
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