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ASIC announces continuation of exemptions in relation to naked short selling
7 January 2009
ASIC has today confirmed that the current naked short selling exemptions will continue after the Corporations Amendment (Short Selling) Act 2008 comes into effect tomorrow, 8 January 2009.
This Act will ban naked short selling, subject to certain exemptions.
ASIC’s current ban on covered short selling of financial securities will remain in place until 27 January, 2009. This ban is not affected by today’s announcement. Requirements with respect to disclosure and reporting of covered short selling are also unchanged.
What changes with the new Act?
Section 1020B of the Corporations Amendment (Short Selling) Act generally prohibits the sale of a section 1020B product (securities, managed investment products and certain other financial products) unless a person has a ‘presently exercisable and unconditional right’ to vest the product at the time of sale.
The prohibition is subject to a number of exemptions under subsection 1020B(4), which permits short selling in a defined range of circumstances.
What are the exemptions to the ban of short selling?
ASIC has power under s1020B(2) of the Corporations Act 2001 to grant relief from the naked short selling prohibition. It has issued a class order (CO 09/01052) which ensures that the exemptions currently in the Corporations Regulations will continue to apply.
These exceptions relate to:
- The giving or writing of certain exchange traded call options. Without relief, a person cannot write or give a call option without holding the underlying security or entering into a securities lending agreement because of s1020B(7). The practice of giving and writing of options occurs in options markets internationally and is significant in ensuring a degree of liquidity in the options markets.
- Unobtained financial products. The exemption allows the seller to obtain the relevant financial products by exercising an exchange traded option. This practice does not create a net economic short position or involve significant settlement risk. This exemption varies slightly from existing relief under the Corporations Regulations in that it also extends to unobtained financial products (not just shares).
- Certain corporate bonds, debentures and government bonds. The exemption continues to allow naked short selling of certain bonds and debentures. These activities are essentially directed at professional markets and have low settlement risk.
Will ASIC’s ‘no action’ position for owners selling from stock lending portfolios continue?
ASIC also confirmed that its no-action position for owners selling from stock lending portfolios, which it announced on 24 September, 2008, will continue.
How does this apply to me?
The effect of ASIC’s class order announced today is that the current exemptions in relation to naked short selling will continue from tomorrow when the Corporations Amendment (Short Selling) Act 2008 comes into effect.
Similarly, ASIC’s ‘no action’ position for owners selling from stock lending portfolios will continue.
The ban in relation to covered short selling of financial stocks will remain in place until 27 January, 2009. The reporting and disclosure requirements for covered short selling remain in place.
For further information:
Certainty Compliance can help you understand and comply with the Short Selling rules. Please contact a Consultant on (02) 9238 8091 or enquiries@certaintycompliance.com.au
Read ASIC’s new release on the continuation of naked short selling exemption here
Read ASIC’s Class Order (CO 09/01051) on exemptions to naked short selling provisions here
Read ASIC’s advisory on its ‘no action’ position for owners selling from stock lending portfolios here