In its information sheet 255, the regulator pointed to recent practices by activist short-sellers that could cause harm to markets, including the release of reports questioning a listed company’s finances, management, disclosures or future prospects close to market open, without giving the company in question adequate time to prepare a response.
It also said reports from short-sellers should be based on “reliable information” and any recommendation or opinion should be formed “on a reasonable basis”.
“Providers of short reports should avoid being selective in deploying only facts that support their short thesis while ignoring facts that run counter to the thesis,” ASIC said.
“Engaging with only a small and select sample of clients, ex-employees or contracted parties may not be representative of issues across the entire entity.”
In addition, ASIC said providers of short reports should engage with target companies to check their facts, avoid emotive language and disclose any conflicts of interest, as well as avoiding selective distribution of reports that could “amount to possession of inside information”.
“Investors expect to transact in a fair and informed market. When activist short sellers provide accurate and meaningful new information, they can have a positive impact on price formation and market integrity as they may counterbalance excessive market optimism,” ASIC commissioner Cathie Armour said.
“However, activist short sellers can also unfairly distort the price of a target entity’s securities, which is harmful to the integrity of our markets.”
The regulator also said market operators and companies that were the target of short reports had roles to play in minimising investor harm from short-selling, including ensuring securities were placed into a trading halt when the forthcoming release of a short report was likely to have a significant impact on trading.
Further, ASIC said it was on the lookout for “short and distort” campaigns where activist short-sellers aimed to manipulate stock prices and take advantage of the volatility caused by the release of a short report.
“There are a range of steps ASIC may take in response to activist short selling campaigns, including… engaging with the activist short seller on whether the person has conducted a financial service in Australia and holds the necessary licence, testing the veracity of the claims in the short report, the process and timing of the short report’s release and its impact on the market, and how conflicts of interest are disclosed,” the regulator said.
ASIC said it may also engage with the short-seller’s home regulator if they were based abroad, and take action for potential breaches of the law.
