REGULATORS have vowed to impose a fresh ban on short-selling in shares if markets descend into the kind of chaos seen at the time of the global financial crisis.
The Australian Securities and Investments Commission has said it will impose a ban on the practice should market conditions require it.
The warning came as part of a review of a temporary ban on short-selling that ASIC imposed on all stocks from September 2008 to November that year, during the GFC, when share plunges were exacerbated by investors looking to profit from volatility. The ban on short-selling for financial stocks, whose health is entwined with the overall stability of the nation's financial system, lasted until May 2009.
Usually linked to hedge funds, short-selling is the practice of speculators selling shares they do not own in the hope of buying the stock back later at a lower price. It is often blamed for creating excessively volatile market conditions and undermining the prices of banks and other financial stocks.
"If a situation arises in the future that involves disorderly markets and action by regulators in other jurisdictions to further restrict short-selling, it is likely that ASIC and the Australian government would again contemplate a ban on short-selling to bolster investor confidence and limit the potential for international regulatory arbitrage," ASIC said as part of its review.
ASIC said the rule changes at the time "broadly met" its regulatory objectives.
"At the height of the global financial crisis, we identified a significant risk that excessive speculative short-selling could have unwarranted, negative consequences for Australia's markets and economy more broadly," the ASIC deputy chairman Belinda Gibson said yesterday.