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ASX feeling the pinch...

Discussion in 'Shares' started by AsxBroker, 4th Oct, 2008.

  1. AsxBroker

    AsxBroker Well-Known Member

    8th Sep, 2007
    Sydney, NSW
    ASX seeks changes to ban on short selling
    Colin Kruger
    October 4, 2008

    THE operator of the Australian Securities Exchange has recommended that the ban on "naked" short selling continue indefinitely but made it clear that it wanted the ban on the more common practice of "covered" short selling to be lifted as soon as financial markets are deemed stable enough to handle it.

    The announcement was made as part of the ASX's formal response to the Government's draft legislation on short selling with the sharemarket operator and regulator backing provisions to make short selling more transparent.

    But the ASX, which is starting to see its earnings affected by last month's blanket ban on short selling, argued that a lifting of the general ban on short selling should not wait until the new regulations are in place, "presumably in the first half of 2009".

    "The fact that desirable new financial market transparency initiatives could not be operational by that time should not delay any partial or complete lifting of the temporary ban, subject to broader (public policy) systemic risk considerations," it said.

    The ASX reported that its September trading showed volumes rebounded after a weak performance in August, despite the introduction of the short sale ban by the Australian Securities and Investments Commission on September 22.

    But analysts at Credit Suisse said most of the strength in equity volumes "was driven by strong volumes prior to the short sale ban, with average volumes post the short sale ban 15 per cent lower than non-ban days". The broker said an extension of the short sale ban was a factor that would continue to impact on sentiment surrounding the stock.

    Merrill Lynch also said that "anecdotal feedback points to a broader slowdown in trading post the short sale ban than ASX stats suggest" and trimmed its earnings forecast for the ASX.

    "Covered" short sellers borrow a stock then sell it in the hope of driving the share price down so they can buy it back at a lower price - that is, at a profit - before returning the borrowed stock to its original owner.

    "Naked" short selling is more risky, as the seller does not borrow the stock before selling it - that is, they must subsequently acquire stock which has already been onsold to another party.

    The ASX said there was a legitimate role for short selling in contributing to market liquidity and efficiency and backed proposals designed to improve the transparency of the practice, saying it would "improve price discovery and the robustness of the equity settlement process, and reduce the potential opportunities for market abuse".

    The ASX has drawn criticism over its dual role as market regulator and profit-making enterprise dependent on the very market it is meant to regulate.

    Last month its retiring chairman, Maurice Newman, launched a broadside at critics who, he said, ignored the ASX's success as a market operator. Mr Newman also said that introducing more competition, an idea that is being contemplated by the Government, would only dampen liquidity and add to market volatility.

    ASX shares closed 33c lower at $31.02 yesterday.

    ASX seeks changes to ban on short selling |