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ASIC consults on short selling

ASIC consults on short selling

Jessica Yun
— 1 minute read

The corporate regulator has released a number of proposals on naked and covered short selling for public consultation.

ASIC has announced in a statement that it is reviewing its approach to short selling, with a view to “consolidate all short selling-related relief into a single instrument” after the consultation period.

Under the current Corporations Act and Corporations Regulations, covered short sales are permitted but naked short sales are banned, with exceptions at the discretion of ASIC.

The framework pertaining to short-selling was passed in 2008 and is due to ‘sunset’ between October 2018 and 2020, and accordingly ASIC is looking to review this class order.

“We propose to slightly extend the scope of relief to apply to naked short sales of [SPDR S&P/ASX 200] made for the purpose of hedging listed options over the [SPDR S&P/ASX 200],” the statement said.

A number of exchange-traded product makers have been granted permission to short-sell since 2008, and ASIC has acknowledged “the important role that ETP market makers fulfil in providing liquidity to the markets”.

“We now consider that it is an appropriate time to consult on legislative relief. We see our policy on this relief to be well settled,” the statement said.

“The instrument of relief will include some additional conditions not previously included in our standard no-action letters.

“These additional conditions are intended to ensure that we can still achieve our regulatory outcomes where we no longer consider matters on a case-by-case basis.

ASIC is seeking feedback on proposals to grant legislative relief in a number of instances, such as:

  • “to allow market makers of certain exchange-traded products to naked short sell units” in an ETF or managed fund “in the course of making a market in those products”;
  • “to allow naked short sales of unissued products during a deferred settlement trading period” in the context of corporate actions;
  • “to allow naked short sales in connection with initial public offering (IPO) selldowns made through a special purpose vehicle (where existing shareholders of a company sell their shares through a special purpose on the condition that the company conducting the IPO is listed on the ASX)”;
  • “change the relevant time that short positions are calculated”; and
  • “remake a number of short selling class orders that are due to ‘sunset’”.

Commenting on the public consultation, ASIC commissioner Cathie Armour said short selling needed to be regulated properly “so that our market remains orderly and transparent”.

“The proposals strike a balance between providing efficiency and certainty and reducing the burden of compliance for businesses, and managing the risks that short selling poses to market integrity,” she said.

Responses should be address particular sections of the consultation paper and pertain to a business, the statement said.

ASIC will aim to issue a final consolidated instrument prior to 1 October after submissions close after 20 June.

 

ASIC consults on short selling
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