Tighter regulation for short sellers

In draft regulations released by the Corporate Law Minister, Chris Bowen, the Government will keep in place interim disclosure rules that have operated since November, which require brokers to report clients' short selling to the Australian Securities Exchange.

Under this system, the ASX publishes a report of the volume of short-selling in individual stocks each morning for the previous day's trade.

But from April next year, the Government will also require short-sellers to report their net short-sale positions to the Australian Securities and Investments Commission, which will aggregate the data for public release four days later.

It comes more than a year after the Government and the ASIC first moved to ban naked short-selling and boost transparency of covered short-selling, and almost 10 months after the Government passed legislation on the issue.

Covered short-selling is when a trader borrows shares then sells them, in the hope of buying them back and returning them at a lower price and pocketing the difference. Naked short-selling uses the same method, except the trader has not yet arranged to borrow the shares.

Finishing the regulations behind the new laws proved difficult, due to deep disagreement among interested parties about the details of disclosure  especially when short-selling data should be made publicly available. In March, Mr Bowen's predecessor, Nick Sherry, said progress on the regulations had been delayed because of "vigorously contested views around a number of issues".

Industry groups said yesterday that the rules were a reasonable compromise that would end uncertainty.

The Investment and Financial Services Association had argued that releasing information too quickly could undermine its accuracy and reveal funds' investment strategies. But the association's chief executive, John Brogden, said yesterday that the draft guidelines offered a "good, reasonable outcome".

"It's taken longer than we would have liked, and I'm sure it's taken longer than the Government would have liked," he said. "It's a very complex issue ... we'd prefer to have this a little bit late than a short-term, knee-jerk outcome that could have been with us for years."

The Securities and Derivatives Industry Association said investors could now "move forward" without the "regulatory uncertainties". But its chief executive, David Horsfield, said questions remained about the usefulness of the daily gross data released by the ASX. "[It] does not take into account short sales that may have been closed out on the same day, which may undermine the worth of the figures, he said.

The Opposition questioned the time taken to finish the rules, with a spokesman for the shadow financial services minister, Chris Pearce, saying the Government had "dragged its feet" on what it had claimed was an urgent issue.

The Government has asked for comment on technical issues relating to the regulations by October 23. It said it would review the arrangements 12 months after they begin.