Australia extends shorting ban to covered short sales

Sydney-based regulator the Australian Securities and Investments Commission (Asic) today extended its ban on naked short-selling – introduced last week – to covered short sales of all listed stocks.

The move prompted a delay in trading on the Australian Securities Exchange by one hour this morning as the exchange came to grips with the new rules.

Asic said it will reassess its position in 30 days to determine whether it will permit covered short-selling of non-financial stocks.

Covered shorting involves an investor or speculator borrowing stock, which he or she then shorts. Naked shorting does not require the participant to borrow stock. The shorting of stocks – chiefly those in the financial sector – was viewed by many as a major reason for sharp increases in equity volatility around the world.

Other countries to have made similar moves include Australia, Taiwan, the UK and the US, and other regulators are assessing their responses.

The US Securities and Futures Commission announced a ban on the short selling of financial stocks from September 19 to October 2, having previously banned naked shorting on September 17. The UK’s Financial Services Authority also put in place a ban on shorting financial stocks from September 19 until January 16, but will review it after 30 days.

And Taiwan’s Financial Supervisory Commission today placed restrictions on the shorting of 150 key index stocks from September 22 to October 3.