Mind your language: Australian securities regulator targets activist short sellers
03 June 2021 Australia
Image: stock.adobe.com/Zerophoto
The Australian securities regulator has outlined best practices to promote market integrity during activist short selling campaigns.
The Australian Securities & Investments Commission (ASIC) released an information sheet — INFO 255 — on Tuesday outlining how activist short sellers can clean up their act, recommending they avoid “intemperate language” in their reports and “fact-check” with the targeted company prior to release.
Short reports should also be based on reliable information and released outside Australian trading hours but not immediately before markets open, ASIC says, and conflicts of interest should be clearly disclosed.
The guidelines follow a wave of Australian anti-short selling sentiment beginning in March 2020, that drove three of the top-five largest lenders to shutter their programmes, with senior politicians cheering them on.
ASIC's voluntary code also provides recommendations for market operators, those targeted by such campaigns and market participants — encouraging those who witness “suspicious short selling activity” to report it to ASIC.
If a market operator becomes aware that a listed entity is the target of a new short report that has had a material price impact, ASIC says, it should immediately pause trading in the target company’s listed securities and request a detailed and comprehensive response from the targeted company to minimise trading occurring on a misinformed basis.
Although activist short sellers have exposed flawed business models, questionable business or accounting practices, insolvency and fraud, others have also unduly distorted the price of a target company’s securities, ASIC says.
Crucially, short reports are often released during trading hours for “maximum and immediate effect” on the price of the target company’s securities. The time taken to request and implement a trading halt, and for the target entity to issue a response, may result in a period of trading in those securities where the market is not fully informed. It is these campaigns that ASIC wants to address with INFO 255.
ASIC notes that most campaigns against Australian entities have been conducted by overseas activist short sellers that couch their reports as not intended for an Australian audience. But in practice, “online distribution and reporting of campaigns by Australian media mean the reports, or their key messages, are widely accessed by Australians”.
INFO 255 comes after various activist short selling campaigns have made headlines, with online news and social media outlets exacerbating the speed and depth of the market's response to a short report, the guidelines note. Short selling itself has also come under increased scrutiny following the GameStop saga and various bans in the Asia-Pacific region.
The Australian Securities & Investments Commission (ASIC) released an information sheet — INFO 255 — on Tuesday outlining how activist short sellers can clean up their act, recommending they avoid “intemperate language” in their reports and “fact-check” with the targeted company prior to release.
Short reports should also be based on reliable information and released outside Australian trading hours but not immediately before markets open, ASIC says, and conflicts of interest should be clearly disclosed.
The guidelines follow a wave of Australian anti-short selling sentiment beginning in March 2020, that drove three of the top-five largest lenders to shutter their programmes, with senior politicians cheering them on.
ASIC's voluntary code also provides recommendations for market operators, those targeted by such campaigns and market participants — encouraging those who witness “suspicious short selling activity” to report it to ASIC.
If a market operator becomes aware that a listed entity is the target of a new short report that has had a material price impact, ASIC says, it should immediately pause trading in the target company’s listed securities and request a detailed and comprehensive response from the targeted company to minimise trading occurring on a misinformed basis.
Although activist short sellers have exposed flawed business models, questionable business or accounting practices, insolvency and fraud, others have also unduly distorted the price of a target company’s securities, ASIC says.
Crucially, short reports are often released during trading hours for “maximum and immediate effect” on the price of the target company’s securities. The time taken to request and implement a trading halt, and for the target entity to issue a response, may result in a period of trading in those securities where the market is not fully informed. It is these campaigns that ASIC wants to address with INFO 255.
ASIC notes that most campaigns against Australian entities have been conducted by overseas activist short sellers that couch their reports as not intended for an Australian audience. But in practice, “online distribution and reporting of campaigns by Australian media mean the reports, or their key messages, are widely accessed by Australians”.
INFO 255 comes after various activist short selling campaigns have made headlines, with online news and social media outlets exacerbating the speed and depth of the market's response to a short report, the guidelines note. Short selling itself has also come under increased scrutiny following the GameStop saga and various bans in the Asia-Pacific region.
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