Asic said in a statement that "the balance between market efficiency and potential systemic concern has now moved in favour of the ban being lifted". Nonetheless, the regulator warned that it would not hesitate to re-impose the ban if necessary.
Asic will continue to require dealers to report gross short sales to the Australian Securities Exchange (ASX) and aggregate short sales to the market the day after trading. However, Asic stated it wishes to move towards a system of tagging short sales, which would then be automated to the ASX.
Asic is the latest in a series of regulators to lift a ban on short selling: Greece's Hellenic Capital Markets Commission lifted its ban on May 15 and South Korea's Financial Markets Commission allowed the short selling of non-financial stocks from May 20. Bans in the US and Canada expired in October 2008, while the UK's ban ended on January 16. Other bans - including ones imposed by Italy's Consob and Germany's Bundesanstalt für Finanzdienstleistungsaufsicht - are set to expire on May 31.
The wave of short selling bans came in the aftermath of Lehman Brothers filing for Chapter 11 bankruptcy protection on September 15. With financial stocks in freefall, there was concern in the market that short sellers - who borrow a stock, sell it with the view that it will depreciate in value, before buying it back at the lower price to realise a gain - might be driving down share prices even further. The UK's Financial Services Authority and Canada's Ontario Securities Commission led the way, imposing bans on September 18, 2008, while Asic imposed its own ban on September 21, 2008.
The week on Risk.net, August 19-25, 2016Receive this by email