Pre-empting its self-imposed deadline to review the short-selling ban on financial stocks and picking a day when trading should have been subdued by a US public holiday, ASIC drew mainly bouquets from the funds management industry yesterday when it lifted the ban at 10am.
Early trading in financials did show some selling, but prices came back fairly quickly only to move lower again by lunch time. The financial index ended the day down 2.6 per cent compared with the ASX decline of 0.5 per cent.
The Alternative Investment Management Association welcomed the removal of the ban, as did the Australian Securities Lending Association, but both organisations were not completely pleased with the ASIC announcement.
ASIC said, in part: “ASIC will not hesitate to reimpose the ban immediately … and without consultation if it considers market conditions warrant such action… ASIC will, in its monitoring of the market along with ASX, pay particular attention to short selling activity by participants (including activity by hedge funds and similar institutions) which could potentially harm Australia’s financial system…”
The ban was due to be reviewed by this Sunday.
Kim Ivey, chair of AIMA’s Australian chapter, said the specific mention of hedge funds in ASIC’s media release was “quite unjustified and unreasonable” in the light of the fact that no evidence existed that a hedge fund had ever been in breach of Australian short selling or market manipulation laws.
Peter Martin, the co-chair of ASLA, said any reimposition of the ban without consultation would simply fuel ongoing market uncertainty for investors.
“For offshore investors in particular, this continued regulatory uncertainty in Australia will limit perceived investment opportunities compared with other countries.”
Sean Fenton, who runs the alpha-extension fund at Tribeca Investment Partners and has been a critic of the ban, said it was good to get the market back to normal for clear and transparent pricing.
“The initial case for the ban which was to prevent a run on the banks is no longer there. Spreads are returning to pre-crisis levels, the liquidity position of the banks has improved; they’ve all been recapitalised … The costs (of the ban) had become greater than the benefits,” he said.
Fenton said he would be happy to meet the proposed compliance with a new permanent disclosure regime, expected to be revealed for discussion within the next two weeks, although he did not think there would be a lot of benefit in having daily disclosure, as required under the current temporary regime.