The Corporations Amendment (Short Selling) Bill 2008 has been introduced into Parliament to better regulate the use of short selling in the Australian financial market.
UPDATE: Bill passed 5 December 2008. Act as passed
The Bill prohibits "naked" short selling, where the seller has not bought the shares they are selling.
The Bill includes:
- a comprehensive disclosure regime for permitted covered short selling (where the seller has a right to the shares), including placing a positive obligation on brokers to enquire of a client whether a sale is a covered short sale when a client places an order, and a direct obligation on market operators to publicly disclose short selling information they obtain from brokers;
- an expansion of ASIC's powers to enable it to impose regulations on transactions that are substantially similar in effect to short selling and a clarification beyond doubt of ASIC's general powers by explicitly stating that ASIC has the power to limit, prohibit or impose additional conditions on short selling transactions; and
- a legislative confirmation of ASIC's previous declarations temporarily banning covered short selling and requiring the disclosure of permitted covered short sales to provide both ASIC and industry participants with certainty over the scope of ASIC's powers in relation to short selling.
ASIC will hold the power to grant exemptions from the naked short selling prohibition in the limited cases where some non-speculative naked short sales are necessary to ensure the ordinary operation of the market.
