Short-selling Plan Criticised
The Age
Saturday May 24, 2008
SERIOUS doubts have been raised about the ability of regulators to impose effective disclosure of short-selling.
Former regulators and major brokers yesterday expressed their disquiet at the likely disclosure regime, describing the resulting information as practically meaningless. Short-selling, when investors profit from share price falls, is the subject of proposed new laws to tackle uncertainty about the need to disclose short-selling. The regulatory manager for the Australian Securities Exchange, Malcolm Starr, said yesterday that current disclosure of short-selling captured much less than 1% of total short-selling volumes. Short-selling by large fund managers, including hedge funds, has been blamed for sharp share price falls surrounding companies including Allco Finance Group, ABC Learning Centres and MFS, now Octaviar. But at a Securities & Derivatives Industry Association conference in Melbourne yesterday, Alan Cameron, a former head of the Australian Securities Commission, raised three potential problems: ? Disclosure of short-selling would be incomplete, because there are other traded products including options and contracts for difference that can be used to the same effect as short-selling. ? Brokers do not know what their institutional client is doing. ? Large amounts of disclosure may result in almost meaningless information. A former head of market supervision at the Australian Stock Exchange, Jim Berry, called for disclosure to be extended to stock lending and derivatives contracts that could be used for short-selling. "What I think is needed is for people to know what supply of the stock is there; it's a proxy for what's going on," he said. Grahame Pratt, the head of equities with ABN Amro, agreed brokers were reliant on what their clients told them in relation to short-selling. "It's unenforceable, in a sense, because you need to get your client, assuming you are on the phone to him, to actually tell you," he said. He said moving disclosure responsibilities from brokers to stock lenders would give a meaningful proxy for the level of short-selling.
© 2008 The Age
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