Gavin Marshall (Victoria, Australian Labor Party) Share this | Link to this | Hansard source

My question is to the Minister for Superannuation and Corporate Law, Senator Sherry. Can the minister update the Senate on what actions are being taken to ensure our financial markets continue to operate in an orderly fashion?

Nick Sherry (Tasmania, Australian Labor Party, Minister for Superannuation and Corporate Law) Share this | Link to this | Hansard source

I thank Senator Marshall for that very important question. As I am sure most Australians and all in this chamber are well aware, it has been a very tumultuous period on financial markets over the last eight or nine months, particularly in the last two weeks. We are not immune to the impacts of what is known as the US subprime crisis, the financial crisis that has hit all markets around the world. We operate in a global economy. However, we are better placed than most countries to weather this storm. The government has moved quickly to strengthen our financial system in a number of ways. We are implementing what is known as the Financial Stability Forum recommendations in full. We have taken steps to support liquidity in the government bond market to ensure our broader financial markets operate more effectively, and we are strengthening protections for deposit holders through the introduction of a financial claims scheme. We are modernising and updating financial regulation in this country by introducing single standard national regulation of all providers and products in this country.

Australian regulators are in regular contact with overseas regulators, and are coordinating their responses to the global financial market crisis. At the same time we are taking into account the particular needs of the Australian market. On Friday and over the weekend the regulators have moved to take action in respect of what is known as short selling. Short selling is where market participants make a profit from shares falling, usually using shares they do not own. In ordinary times short selling stocks can aid the functioning of markets by helping true price discovery and liquidity, but these are not ordinary times. The use of short selling to manipulate the market by using false rumours to drive down the price of particular stocks is of significant concern. For these reasons, last Friday ASIC took decisive action to limit this sort of behaviour in the current market circumstances. In light of global developments in recent weeks ASIC and the ASX took coordinated action over the weekend to limit the use of short selling. It is an interim ban. This will help ensure the integrity of the operation of our financial markets. On Friday night, ASIC and the ASX announced an interim ban on all naked short sales effective from this morning and a limit on the number of allowable covered short sales and an increase in disclosure requirements for those allowable covered short sales.

To illustrate how globally interconnected these matters are, across the weekend following the ASIC move the US Securities and Exchange Commission, the Irish Financial Services Authority, the French Financial Markets Authority and regulators in Germany and the Canadian province of Ontario all took similar steps with respect to covered short sales. Following consultation with its counterparts overseas and participants in the financial markets, ASIC has since also announced an interim ban on covered short selling. ASIC’s measures do extend beyond the US and UK positions by temporarily halting covered short selling of all stocks on the Australian stock exchange. ASIC advised that this is necessary due to the relatively small size and structure of the Australian share market. To limit a prohibition to financial stocks only could subject other non-financial stocks to unwarranted attention. These interim bans came into force at 9 am today. After 30 days ASIC will reassess the situation and decide whether it will again allow covered sales—(Time expired)

Gavin Marshall (Victoria, Australian Labor Party) Share this | Link to this | Hansard source

Mr President, I ask a supplementary question. Can the minister explain how the moves to temporarily ban short selling fit in with broader moves to manage the Australian economy in these uncertain times?

Nick Sherry (Tasmania, Australian Labor Party, Minister for Superannuation and Corporate Law) Share this | Link to this | Hansard source

As I was saying, after 30 days ASIC will reassess the situation and decide whether it will again allow covered short sales in non-financial stocks and naked short sales. It will review the ban on covered short sales of financial stocks at the same time as the US Securities and Exchange Commission, the UK Financial Services Authority and others do so. It is very important to maximise international coordination and consultation in these turbulent times in financial markets. ASIC’s actions over the weekend have strong support from the Australian financial sector. As previously noted, the government will introduce shortly the Corporations Amendment (Short Selling) Bill 2008 which will establish a comprehensive disclosure regime for covered short selling should the regulator determine at a future date to again allow this form of market trading. As has been said, Australia does have a world-class regulatory system. The actions of our regulators last week—(Time expired)