ASIC extends short selling ban

Fears that global hedge funds would target local financial stocks prompted the
corporate watchdog to extend its ban on covered short selling of financial
securities for a third time.

The Australian Securities and Investments Commission (ASIC) said on Thursday it was
extending the ban until May 31 as a cautionary measure but would keep this position
under review.
"ASIC weighed up the continued volatility in global financial markets and potential
damage from aggressive or predatory practices from short selling against the
possible loss of some market efficiency or price discovery," the regulator said in a
statement.
"Any possible loss of market efficiency or price discovery as the result of the
continuation of the ban is justified given the current market circumstances."
The ban was due to be lifted on March 6.
The third extension of the ban came amid concerns that hedge funds would engage in
aggressive shorting of financials on Friday if the ban was removed.
An ASIC spokesman said: "There are a number of players who are trying to do certain
things to a number of stocks all over the place and we're looking after the
financials because they are so integral to our market here."
Financial stocks make up over half of the Australian market in stark contrast to the
US and UK where financials are a much smaller component, he said.
As well, market volatility increased this week on the back of Wall Street's 4.2 per
cent plunge on Monday after the market had begun to stabilise over the past month,
CMC Markets head of trading James Foulsham said.
The nature of the volatility may change over coming months, Mr Woodhill said.
"Will exactly the same conditions be in play in two or three months time - who knows?"
However, ASIC was silent on its review of the impact of the lifting of the
short-selling ban in the UK by its counterpart, the Financial Services Authority, on
January 16.
ASIC made its second extension of the ban on January 21 so it could determine if the
resumption of short-selling in the UK contributed to a spike in volatility in bank
stocks, or was merely coincidental.
On Thursday, local banking stocks had mixed trading results on ASIC's decision.
Macquarie Group, a former victim of shorting, fell to an intra-day low of $17.20
before closing 20 cents, or 1.12 per cent, higher at $18.10.
Commonwealth Bank added six cents, or 0.22 per cent, to $27.33, ANZ Banking Group
firmed 20 cents, or 1.61 per cent, to $12.65, and Westpac gained nine cents, or 0.57
per cent, to 415.79.
National Australia Bank shed 43 cents, or 2.5 per cent, to $16.77.
Covered short-selling of non-financial stocks is still permitted.