Australian Stock Exchange ASX Opens Late – No Covered Shorts

This morning the Australian Securities and Investment commission instructed the ASX to give the following advice to market participants:

“ASIC will provide a no action letter for hedging of existing positions of market makers arising from their client business. ASIC will settle terms of that letter today, but it will be to the effect that the prohibitions on covered short sales will not apply to hedging a position that was taken by an entity prior to 22 September 2008 as part of its business of dealing as principal in equities, options or derivatives (whether OTC or exchange-traded) to fulfil orders received from clients or to respond to a client’s request to trade, in each case before that date.”

You can read the full details of these recent regulatory changes below:

1. 08-204 Naked short selling not permitted and covered short selling to be disclosed. Friday 19th September 2008.
2. 08-205 Covered short selling not permitted. Sunday 21 September 2008.
3. AD08-20 ASIC advice to ASX market participants regarding hedging existing transactions.Monday 22 September 2008.

With these measures and the US governments Nationalisation of struggling banks and financial institutions there was only one way the market could go today and that was UP. The S&P ASX 200 intraday chart is shown below:

Note: The unusual 11AM Open time.

The other benchmark Australian Index the All Ordinaries index also performed remarkably well to post it’s largest 2 day rally since 1987. The All Ordinaries index intraday chart is shown below:

It will be an interesting week ahead to see how banks and intuitions engineer ways to profit from this temporary regulation.

About the author

Mark - Is a 28 year old form Australia. He has a Bachelor in Economics and a Major in CS. He is currently working towards his CFP. His interests include algorithmic trading systems, artificial intelligence, game theory and poker.