OZschwitz: Market manipulator ASIC draws ire as ban on short selling is extended

THE corporate regulator has widened a split between Australia's banks and the rest of the finance sector after extending its ban on the short selling of financial stocks.

The ban's detractors called on the Australian Securities and Investments Commission, headed by Tony D'Aloisio, to clarify what it has learnt since it imposed the ban six months ago, why it has decided to keep it, and what needs to happen for it to be lifted.

The regulator extended the ban yesterday to the end of May. It was first imposed in September. A ban on short selling companies with no links to the finance industry has already been lifted.

ASIC said it was pursuing a "cautious approach" amid "potential damage from aggressive or predatory practices" in volatile markets. It had conducted "extensive research and analysis" before making its decision.

But the chief executive of the Investment and Financial Services Association, Richard Gilbert, drew attention to the vagueness of ASIC's statement.

"What the finance industry needs is some clear guidelines about what conditions [ASIC] would need in order to lift the ban," Mr Gilbert said.

Australia is one of a number of smaller markets - including Italy and the Netherlands - to retain a ban on short selling. The practice involves investors borrowing shares, selling them, and hoping to buy them back at a lower price and pocket the difference.

The major banks and investment house Macquarie Group have lobbied ASIC to retain the ban, which prevents hedge funds attempting to drive down their share prices.

The Australian Prudential Regulation Authority is also understood to have supported maintaining the ban.

But the ban has been disparaged by some investors for distorting the market.

Justin Wood, the head of strategic solutions at Barclays Global Investors Australia, said it would be useful to know if ASIC had analysed whether prices were falling because of short selling or if investors were simply dumping their stocks.

"It would be quite nice to know what kind of extensive research they have done and what have they found out," Mr Wood said. "What's driving their analysis apart from nervousness?"

While the ban has been in place, financial stocks have suffered just as badly as other companies. Shares in Macquarie Group, for example, have fallen dramatically in spite of the ban.

There has been a suggestion that investors have been able to get around the ban using derivatives. But there are also concerns the ban has removed liquidity from the market and made share prices more volatile.

The Australian Bankers Association welcomed the retention of the ban.

LNK

OZschwitz: Market manipulator ASIC draws ire as ban on short selling is extended

OZschwitz: Market manipulator ASIC draws ire as ban on short selling is extended

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