The Australian Government in a move aimed at offering its markets some protection from unprecedented turmoil in the financial markets worldwide, imposed on Sunday a total ban on short selling. The ban will be reviewed after 30 days to determine whether it should be eased by limiting it to financial stocks.
Australia has currently gone further than any other country - banning short selling on all 2600-odd stocks listed in its market, whereas in the U.S. and U.K. short selling has been banned only in financial stocks such as banks.Taiwan and the Netherlands also took steps on Sunday toward naked short sellers by announcing restrictions. On Sunday, Taiwan’s top financial regulator, The Financial Supervisory Commission said it will reimpose a ban on short selling shares in 150 companies in the Taiwan 50 Index, the Taiwan Mid-Cap 100 Index and the Taiwan Information Index, when they trade below the previous session’s closing levels for the two weeks starting today.
Dutch regulator Autoriteit Financiële Markten, or AFM, also banned naked short selling of financial institutions for three months. According to Dutch Finance Minister Wouter Bos, the measure was taken in order to increase the stability of financial markets.
We are taking this measure because we have seen recently that the market value of large financial institutions can drop very quickly and that such financial institutions can literally crash,” Bos said. “If you are not careful (such collapses) endanger the whole financial system. [IHT]
Late last week, the U.K.’s Financial Services Authority clamped down on the practice. Other countries followed, including Canada and Germany. Currently, the effort to prevent short selling seems to have gained momentum around the globe.
Although Wall Street experienced significant gains in its last two sessions on Thursday and Friday, the staggering events of last week, most particularly the $85 billion bailout of insurer American International Group (NYSE:AIG), have left investors more skittish than they have been for decades.
Naked short selling, where sellers sell shares they do not own with the hope of buying them back later at lower prices and pocketing the difference, is blamed for playing a key role in the near meltdown of Bear Stearns and the recent collapse of Lehman Brothers (LEH).