House of Representatives

Corporations Amendment (Short Selling) Bill 2008

Explanatory Memorandum

Circulated by the authority of the Minister for Superannuation and Corporate Law, Senator the Hon Nick Sherry

General outline and financial impact

Outline

The Corporations Amendment (Short Selling) Bill 2008 (the Bill) addresses certain aspects of the regulation of short selling. The Bill contains three key measures:

Clarification of ASIC's powers : The Bill clarifies ASIC's powers to regulate short selling of financial products and transactions that have a substantially similar market effect as short sales under the Corporations Act. These amendments are for the avoidance of doubt and aim to provide certainty to both ASIC and industry regarding the scope of ASIC's powers in this area.
Prohibition on naked short selling : The Bill repeals sections of the Corporations Act that allow certain financial products to be sold even though the seller does not have a presently exercisable and unconditional right to vest the products in the buyer. In a general sense, these transactions are commonly known as 'naked short sales'.
Disclosure of covered short sales : The Bill requires the disclosure of covered short sale transactions. Covered short sales are sales supported by securities obtained under a securities lending agreement. Regulations will set out the timing and manner of the disclosures.

Date of effect: Sections 1 to 3 of the Bill commence on Royal Assent. Schedule 1 of the Bill commences on Royal Assent. Schedule 2 commences on the 28th day after Royal Assent. Schedule 3 commences on a single day fixed by Proclamation but no later than 12 months after the Act receives Royal Assent.

Financial impact: This Bill has no significant impact on Commonwealth expenditure or revenue.

Compliance cost impact: In relation to the clarification of ASIC's powers (Schedule 1), these measures are not considered to have a regulatory impact because they are designed to provide certainty in relation to the scope of ASIC's powers.

In relation to the prohibition on naked short sales (Schedule 2), these measures have a low compliance cost impact on business because of the limited occurrence of naked short selling on Australian financial markets.

In relation to the disclosure regime (Schedule 3), these measures have a transitional and ongoing compliance cost impact on business. The amount of the compliance cost impact will be determined by the details to be prescribed through Regulations. As such, it is not possible to quantify the costs until the Regulations are made. These issues are outlined in the Regulation Impact Statement. [1]

Summary of regulation impact statement

Regulation impact on business

Impact: The amendments have a transitional and ongoing regulatory impact on investors that engage in covered short sale transactions, AFS Licensees (brokers) that execute covered short sale transactions and financial market operators.

Main points:

The disclosure regime will mean greater transparency in relation to covered short sales in Australian financial markets. This will assist in enhancing market confidence by reducing market rumour and speculation about the activity of short sellers.
The main cost of the regime is the compliance burden for investors, brokers and market operators that are required to collect and report information relating to covered short sales.


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