ASIC advised the market on 21 January 2009 that the current ban on short selling of financial securities, introduced on 13 November, would remain in place until 6 March, even though regulators in other markets such as the US and UK have lifted blanket bans on the short selling of financial securities imposed last autumn.

In making its judgment to again extend the ban, the commission says it weighed up the continued volatility in global financial markets and potential damage from aggressive or predatory practices from short selling against the possible loss of some market efficiency or price discovery.

ASIC says it has decided to continue with its cautious approach and keep the ban in place. It says its judgment remains that any possible loss of market efficiency or price discovery as the result of the continuation of the ban is justified given the current market circumstances.

As well as conducting its own extensive research and analysis, ASIC received input from other regulators and from a wide cross-section of market participants in reaching its decision.

The regulator may have been influenced by rumours that speculators planned to target Australian banks, which in general have not suffered the same level of share price declines as their counterparts in other countries, as soon as the shorting ban was lifted.

ASIC says it will monitor the operation of the ban and will not hesitate to act if it finds conduct which seeks to circumvent the operation of the ban on short selling of financial securities.

The commission says that while covered short selling of financial securities continues to be banned, covered short selling of non-financial securities remains permitted. The daily reporting of gross short sales will continue, as will the publication to the market of aggregate short sales the day after trading. ASIC has imposed a strict ban on naked short selling.