Plato found the liquidity of the  ASX300 was reduced and intra-day  volatility increased after the ban was put  in place.  The average level of trades for each  stock fell by 13.7 per cent, or 279 trades  each day, in the 15 days after the ban  was introduced, according to Plato. A  broader analysis, which covered daily  trading data from January 2 to October  13, found the total volume of shares  traded fell by approximately 194 million  shares traded daily after the ban took  effect.  An observation of trading activity  on the October 6 Labour Day public  holiday in NSW provided Plato with  a benchmark for low trading volumes. 

Plato concluded that, as a rough  estimate, liquidity contracted during  the ban to a level roughly half of that  measured on the public holiday, reducing  liquidity, slowing the transmission  of negative news to the market and  increasing the costs of trading.  The analysis also identified an  increase in the volatilities of stocks.  Absolute intra-day volatility, a measure  of the ratio of the highest and lowest  transaction prices of a stock on a given  day, rose from 5.4 to 7.7 per cent, while  idiosyncratic or ‘index-relative’ volatility,  which subtracts the absolute volatility  of the index from the same measure of  a given stock, increased from 3.3 to 4.3  per cent. 

In its defence of the ban, ASIC  argued that the lack of transparency of  short-sales weakened investor confidence,  increased the cost of capital and  reduced trading. But the absence of  shorting has brought the same consequences,  Steele said.  He said the shorting bans in other  developed markets presented Australia  with a “remarkable” opportunity  to stand up for the principle of free  markets.

Since short-selling provides  companies with a deeper and more  liquid market in their securities, lowers  the cost of trading for investors and improves  price discovery, Steele reasoned  that investors prefer to trade in freer  markets and that companies would  want to raise capital there. By following  the moves of regulators in New York,  London and Tokyo, Australia failed to  “take leadership”.  But D’Aloisio said recent events had  vindicated the regulator.  “Were we correct? We believe we  were…Our approach has not been  without controversy: unannounced,  sharp changes in the law are not good  for markets.” 

He said the Italian market regulator’s  ban on naked shorting, imposed  when Australia had banned all shorting  trades, resulted in heavy selling of one  of the country’s largest banks, which  later caused a ban on covered short- A relationship   you can count on.  As a leader in global securities services, J.P. Morgan is passionate  about serving your needs through our unwavering focus on service  delivery, technology and innovation.  Our commitment to client service excellence is vital to your business  needs and to our being the best global service provider for you.