Australia to outlaw 'naked' short-selling
13/11/2008 7:06:46 PM
(Recasts after details of new disclosure rules)
By James Grubel
CANBERRA, Nov 13 (Reuters) - Australia moved to slap a permanent ban on the most controversial form of short-selling on Thursday, and imposed tough new disclosure rules, in a crackdown on hedge funds aimed at restoring confidence in markets.
The ban is in line with similar moves made in several European nations and the United States where policy-makers are also trying to limit fallout from the world financial crisis.
"Australia will be banning 'naked' short selling," Corporate Law Minister Nick Sherry told reporters, referring to a practice whereby investors sell shares they neither own nor have borrowed in the hope of quickly buying them back at a lower price.
Naked short-selling is considered murkier and more risky than traditional short-selling, where hedge funds sell borrowed stock.
Australian regulators banned covered and naked short-selling in September in an immediate response to a global market meltdown, but left the government to make the long-term rulings.
On Thursday, the government confirmed some of the worst fears of the hedge fund industry, mandating a strict new disclosure regime that could compromise short-sellers' trading strategies.
The regime, spelt out later by the markets watchdog and to apply from Nov. 19, would force short-sellers to immediately declare their positions to their brokers, who would in turn notify the stock exchange before trade opened the next morning.
A daily report on short sales, by security and volume, including covered short sales in financial securities, would then be made to the market before trade opened the following day.
The current ban on covered short-selling is due to be lifted in two stages, for non-financial stocks on Nov. 19 and for financial stocks not before Jan. 27.
Sherry said he expected the new laws, to be passed by parliament by mid-December, would also increase supervision of credit ratings agencies, require them to become licensed as financial services providers and to report annually to ASIC.
"It is very important for retail and wholesale investors in Australia that we have robust ratings, and robust research of financial products," Sherry said, adding that they were important to investor confidence in the financial system.
The Australian stock market has fallen by about 41 percent this year and is trading at around four-year lows. (Editing by Jerry Norton}
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