Chapter 1
Introduction
Background
1.1
Global financial markets have come under severe stress in 2008.
The problems originated in the United States, which in September effectively
nationalised its largest mortgage institutions and one of the world's largest
insurance companies. One of its large investment banks filed for bankruptcy,
another was taken over and the remaining two announced their conversion to
commercial banks. These events have had ramifications around the world, with
equity prices falling and credit and liquidity tightening in a climate of
unusual volatility in equity prices.
1.2
While Australian regulatory systems have not been found at fault,
and Australian banks remain strong, the Australian financial system has not
been immune from these pressures. As global commodity prices are particularly
important for Australia, their decline has led to Australian equity prices and
the exchange rate dropping considerably.
1.3
These global developments have led to governments and their
agencies in most countries taking steps to strengthen their financial systems.
This has also occurred in Australia with measures such as explicit guarantees
being provided for bank deposits.
1.4
A response to the heightened volatility in equity markets has
been to restrict short selling. The Government introduced the Corporations
Amendment (Short Selling) Bill 2008 into the parliament on 13 November. The
bill amends the Corporations Act 2001 to 'address certain aspects about
the regulation of short selling' so as 'to enhance the integrity, fairness and
transparency of our markets'.[1]
It 'fills a potentially dangerous gap in our corporate laws'.[2]
1.5
The bill aims to do three things: remove any doubt about the
powers of the Australian Securities and Investments Commission to restrict
short selling; ban 'naked' short selling; and improve disclosure of short
selling. There will be no significant impact on government expenditure or
revenue.[3]
Conduct of the inquiry
1.6
On the recommendation of the Selection of Bills Committee, the
Senate referred the provisions of the bill to the Economics committee on 13 November 2008 for inquiry and report by 27 November. Given the urgency of reducing
uncertainty in jittery financial markets so as not to further damage the real
economy, a long inquiry was not desirable.[4]
1.7
The committee advertised the inquiry in The Australian and
on its website and wrote to many peak organisations inviting submissions. The
committee received 15 submissions (see Appendix 1), which are available on
its website; https://www.aph.gov.au/Senate/committee/economics_ctte/short_selling_08/submissions/sublist.htm.
1.8
A public hearing in Canberra on 24 November afforded the
committee the chance to hear from the relevant regulatory agencies and some
peak industry associations (see Appendix 2). The committee appreciates those
who prepared submissions and appeared as witnesses at short notice.
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