The Australian Securities & Investments Commission (ASIC), Australia’s securities regulator, has extended its ban on covered short-selling of the country’s financial stocks until 6 March because of recent increased volatility in overseas banking stocks, including the UK and US. The regulator had previously announced that the restriction would remain in place until at least 27 January.
The UK’s Financial Services Authority lifted its short-selling ban on 16 January, and ASIC said it had originally intended to follow suit. The US lifted its short-selling restrictions on 17 October last year.
However, the Australian regulator said that increase in the volatility of overseas financial stocks has caused it to reconsider. The Royal Bank Of Scotland’s shares fell 66.6% on Monday, while shares in Bank Of America dropped 29% on Tuesday.
“As many factors are at play in these overseas markets, ASIC needs time to examine these latest developments,” the regulator said in a statement. “ASIC will therefore, over the next few weeks, assess the markets more carefully to determine the role of short-selling and aggressive or predatory practices, and whether there are similar risks for Australia when the ban is lifted.”
ASIC added that the ban was in the context of a legal framework that recognises short-selling as a legitimate mechanism of price discovery and liquidity, subject to disclosure and intervention by the regulator in exceptional cases. It said any possible loss of market efficiency or price discovery caused by the restrictions was justified in the context of the renewed volatility.
ASIC will keep the ban under review, and may lift it before 6 March if it decides it has enough information on the role of short-selling in the increased volatility in banking stocks.