The Australian Securities and Investments Commission (ASIC) and the Australian Securities Exchange (ASX) have from today placed a ban on short selling. This ban will prevent short selling on all securities. ASIC and ASX will after 30 days determine whether short selling will be permitted for stocks other than financial stocks.

What is ‘short selling’?

Short selling is a term used when a trader borrows a security, with the object of making a gain when the price of the security declines. The trader will sell the security as the price declines but then repurchase the security when the price declines even further. The result is a profit on the loss.

If the practice of short selling is permitted, particularly in a turbulent market, short selling contributes to a volatile market and may act to push the price of securities down further.

How does it affect me?

Although the ban on short selling appears to mainly affect the financial community and the way traders operate, it is important that all market participants are aware of the ban and are vigilant of share trading patterns in their companies.

This move by ASIC and the ASX to prevent short selling will help to protect the market. If traders continue to undertake trading that may be described as short selling, ASX will refer the matter to ASIC and may be subject to disciplinary action before the ASX Disciplinary Tribunal.

If you require any further information on short selling, or any other corporate matter, please contact Sharon Robson, Solicitor on 07 3024 0340 or Michele Muscillo, Partner.

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