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Australian Regulator Ends Ban on Shorting Financials (Update1)
By Shani Raja

May 25 (Bloomberg) -- The Australian Securities and Investments Commission will allow short selling of financial stocks from today after an eight-month ban gave banks, insurers and property-related stocks cover to boost their capital levels.

Macquarie Group Ltd., Goodman Group and Suncorp-Metway Ltd. were among companies that took advantage of the shorting ban to sell shares while shielded from “bear raids,” where successive short sales drive stock prices lower. Australian companies have raised $21 billion in equity sales this year, according to a Financial Times report citing Dealogic research.

“Bear raids were a concern in particular for companies with overleveraged balance sheets and vulnerable business models,” said Prasad Patkar, who helps manage about $850 million at Platypus Asset Management in Sydney. “Firms that needed to repair their balance sheets were able to do so without fear of their shares being targeted.”

ASIC banned short selling of all stocks in September as part of international efforts to contain stock market declines after Lehman Brothers Holdings Inc. collapsed and companies from Babcock & Brown Ltd. to Fortescue Metals Group Ltd. complained their shares were being manipulated. In November, the regulator lifted the ban on all but financial companies.

The prohibition, which was due to expire at the end of the week, was lifted from 10 a.m. today, the regulator said in an e- mailed statement.

Market Conditions

“ASIC has reviewed market conditions and considers that the balance between market efficiency and potential systemic concern has now moved in favor of the ban being lifted,” it said in the statement. “ASIC will not hesitate to reimpose the ban immediately and without consultation if it considers market conditions warrant such action.”

Australia permanently outlawed so-called naked short selling, with a few exemptions, in November, when it lifted the ban on covered short sales for most non-financial companies. The ban on short selling financial stocks was extended in January and then again in March.

In a short sale, traders borrow shares from a broker that they then sell. If the price drops, they buy back the stock, return it to the broker and pocket the difference. In a naked short sale, traders don’t borrow the shares.

“Removing the ban brings us in line with our global peers and sends the right message to global investors,” said Chris Weston, an institutional dealer at IG Markets in Melbourne.

To contact the reporter on this story: Shani Raja in Sydney at [e-mail].

Last Updated: May 24, 2009 20:48 EDT


LINK: http://www.bloomberg.com/apps/news?pid=20601087&sid=al96GVFbtfgQ&refer=home