Footnotes

Chapter 1 - Introduction

[1]        Hon Chris Bowen MP, Minister for Competition and Consumer Affairs, Second reading speech, 13 November 2008.

[2]        Senator the Hon Nick Sherry, Minister for Superannuation and Corporate Law, Press release 081, 25 November 2008.

[3]        Explanatory memorandum, p. 3.

[4]        The Senate considered a motion on 26 November that would have extended the reporting date of the inquiry to 6 February 2009, but rejected it.

 

Chapter 2 - Background to the bill

[1]        Another way would be by buying a 'put option'.

[2]        The precise legal form through which the share is 'borrowed' varies. The seller can be described as 'covered' if, at the time of contracting to sell, the seller has a 'presently exercisable and unconditional right to vest the products in the buyer' - that is, a legal title; Corporations Act,s1020B(2). ASIC, Regulatory Guide 196: Short Selling: Overview of s1020B, par. 8. Typical stock 'borrowing' agreements actually involve the so-called 'borrower' purchasing the stock from the lender subject to a contractual obligation to sell back to the lender at an agreed time or on demand. Shares are usually borrowed, for a premium, from fund managers or custodial managers holding shares on behalf of institutions.

[3]        The only quantitative evidence the committee received on this was analysis by Dr Hamson of IFSA who claimed that when short selling was banned, 'the spread went up by about eight basis points'; Proof Committee Hansard, 24 November 2008, p. 3.

[4]        Australian Bankers' Association, Submission 12, p. 2.

[5]        Australian Bankers' Association, Submission 10, p. 2.

[6]        Australian Bankers' Association, Submission 12, p. 2.

[7]        Explanatory Memorandum¸ p.25.

[8]        Explanatory Memorandum, p.25

[9]        Explanatory Memorandum, p.26. The Securities and Derivatives Industry Association argues that 'contrary to belief in some quarters, the volume of naked short sales is not significant'; Submission 14, p.4

[10]      Explanatory Memorandum, p.26. Discussion with a market participant suggested that short selling typically accounts for the majority of equity loans outstanding, but the proportion fluctuates over time.

[11]      Dr Justin Wood, IFSA, Proof Committee Hansard, 24 November 2008, p. 4.

[12]      ASIC announcement AD 08-204; Class Order 08/751.

[13]      ASIC announcement AD 08-205; Class Order 08/752.

[14]      ASIC announcement AD 08-210.

[15]      ASIC announcement AD 080-65; Class Order 08/824.

[16]      Senator the Hon, Nick Sherry, Minister for Superannuation and Corporate Law, Action to Further Enhance Market Integrity, press release 19 November 2008.

 

Chapter 3 - Provisions of the bill

[1]        Australian Financial Markets Association, Submission 5, p. 5. Similar concerns are raised by the Australian Bankers' Association, Submission 10, p. 8.

[2]        Explanatory memorandum, p. 4. See paragraph 2.11.

[3]        Submission 3, p. 1.

[4]        The Age, 13 November 2008. AIMA is described as representing the views of the hedge fund industry.

[5]        Investment and Financial Services Association, Submission 9, p. 2.

[6]        Australian Financial Markets Association, Submission 5, p. 7. There is some support for this view by the ASX, Submission 8, p. 4.

[7]        ABA, Submission 10, p. 4.

[8]        State Street Bank and Trust Company, Submission 6, p.1. Australian Custodial Services Association, Submission 7, p.1. ASIC's 'no action' position was that it would not take action against a breach of short selling requirements in the case of a bona fide transaction from a stock lending portfolio, on certain conditions. ASIC announcement AD08-23, 24 September 2008.

[9]        Australian Financial Management Association, Submission 5, p. 6. Corporations Act (2001), s1020B(4). 'Uptick rule': a naked short sale is permitted on certain conditions providing the price is not less than the market price. 'Approved short sales': short sales of securities approved by the market operator.

[10]      Treasury, Submission 4, p.2

[11]      For example, AFMA, Submission 5, p.6. Securities and Derivatives Industry Association, Submission 14, p.8. 'Seller unaware that the sale is short' could arise because of information barriers between traders in the same entity for compliance reasons.

[12]      ASX Ltd, Submission 8, p.4. This was stated as by contrast with the present situation where the market operator has discretion with the 'approved list' approach.

[13]      Treasury, Submission 4, p. 1.

[14]      AICD, Submission 2, p. 2.

[15]      ASFA, Submission 3, p. 1; ASX, Submission 8, p. 1.

[16]      Treasury, Submission 4, p. 2.

[17]      Proof Committee Hansard, 24 November 2008; Treasury, Submission 4, p.1.

[18]      Mr David O'Reilly, Investment and Financial Services Association, Proof Committee Hansard, 24 November 2008, p. 2.

[19]      Mr David O'Reilly, Investment and Financial Services Association, Proof Committee Hansard, 24 November 2008, p. 5.

[20]      Mr Malcolm Starr, Australian Securities Exchange, Proof Committee Hansard, 24 November 2008, p. 7.

[21]      Mr David Love, AFMA, Proof Committee Hansard, 24 November 2008, p. 12.

[22]      ASX Ltd, Submission 8, p.3; AICD, Submission 2, p.1; ASFA, Submission 3;  CSA, Submission 10, p.2; IFSA, Submission 9, p.3; Australian Bankers' Association, Submission 12, p.6.

[23]      Treasury, Exposure Draft of the Corporations Amendment (Short Selling) Bill 2008 - Commentary, 23 September 2008.

[24]      A. Rofe, Submission 13, p.2. Similarly AFMA, Submission 5, p. 11.

[25]      AFMA, Submission 5, p. 10.

[26]      Mr Malcolm Starr, ASX, Proof Committee Hansard, 24 November 2008, pp 7-8. Dr Wood from IFSA suggested as a possible response to this problem only requiring data from the larger funds: Proof Committee Hansard, 24 November 2008, p.2.

[27]      ASX Ltd, Submission 8, p. 3.

[28]      Chartered Secretaries Australia, Submission 10, p. 3.

[29]      Mr David O'Reilly, Investment and Financial Services Association, Proof Committee Hansard, 24 November 2008, p. 1. Similar concerns about confidentiality are raised by the Australian Bankers' Association, Submission 10, p.5 and ASX, Submission 8, p. 2.

[30]      SDIA, Submission 14, pp 5, 7 and 10.

[31]      Australian Financial Management Association, Submission 5, p. 10.

[32]      Australian Financial Management Association, Submission 5, pp 10-11.

[33]      IFSA, Submission 9, p.4. SDIA, Submission 14, p.5. ABA, Submission 12, p. 6.

[34]      Mr David O'Reilly, Investment and Financial Services Association, Proof Committee Hansard, 24 November 2008, p. 22. IFSA, Submission 9, p.4.

[35]      ABA, Submission 12, p.7.

[36]      Mr Malcolm Starr, ASX, Proof Committee Hansard, 24 November 2008, p. 8.

[37]      Treasury, Submission 4, p. 1.

[38]      Mr David Love, Australian Financial Management Association, Proof Committee Hansard, 24 November 2008, p. 13. See also Explanatory memorandum, p. 5.

[39]      Australian Financial Management Association, Submission 5, p. 9.

[40]      ASX, Submission 8, p. 3.

[41]      Explanatory memorandum, p. 34.

[42]      Australian Financial Management Association, Submission 5, p.10. Similarly ABA, Submission 12, p.9.

[43]      ASX, Submission 8, p. 4.

[44]      AICD, Submission 2, p. 2.

[45]      SDIA, Submission 14, p.3.

[46]      Senator the Hon. Nick Sherry, Minister for Superannuation and Corporate Law, 'Action to Further Enhance Market Integrity', press release 19 November 2008.