‘Send a strong message’: Senator calls for ASIC to take harder line on activist short sellers
Federal Liberal Senator Paul Scarr has launched a scathing attack on the corporate regulator, accusing it of failing to adequately police short selling ambush attacks by certain groups of activist investors against ASX-listed companies.
One day after the Australian Securities and Investments Commission released new advice for how short-selling campaigns should be conducted on the ASX, Mr Scarr used a parliamentary committee hearing to criticise the regulator’s approach as “underwhelming”.
“You’ve released an info sheet and I’ve got to tell you from my perspective that it’s pretty underwhelming,” Mr Scarr said. “What is ASIC doing to enforce Australian law against short sellers who are totally oblivious to any concern, who totally disregard the suggestions you provide in the information sheet in relation to engagement with companies and not using inflammatory language?”
ASIC’s new non-binding advice released this week asks short sellers and other research groups to release their reports outside of trading hours and to fact-check their theses with target companies before releasing the information. The regulator is also asking short-sellers to avoid using emotive language.
The advice follows an investigation by The Sydney Morning Herald and The Age into the practises used by some short sellers in so-called “short and distort” attacks.
ASIC’s approach aims to give companies more time to request trading in their shares be halted and to prepare public responses before there is any market reaction. However, critics of the advice say it will do little to curb attacks from groups based offshore over which ASIC has no juridstiction.
Mr Scarr’s spray came as the new chair of the Australian Securities and Investments Commission Joe Longo used his maiden appearance before a government committee after joining this week to flag looser regulations for the financial advice sector.
Mr Longo did not address the issue of short selling, leaving his commissioner Cathie Armour to weather questions from Mr Scarr over the information sheet.
Commissioner Cathie Armour defended the watchdog’s approach saying that it conducted a full review of trading in a company’s stock when a short seller report was released and would take action if it identified any breaches of the law. “We agree it’s an area that we need to be focused on.”
But Mr Scarr shot back: “Can’t we have an actual strategy to send a strong message that we’re not going to cop this in the Australian market? Isn’t there more we can do?”
Ms Armour told the committee later during the hearing that the rate of short selling in Australia was low.
“One of the very important structural elements of our market compared to some of the overseas markets is that we have quite strict rules about what covered short selling is, you have to have a presently available right to the stock, ” Ms Armour said.
“In other jurisdictions it’s a ‘you can locate those shares later style system’ and I think that’s meant that our level of short selling as a percentage of the stock on offer is relatively low,” she added. Senator Rex Patrick chimed in with an example, noting that US-listed Gamestop was shorted by as much as 400 per cent.
Mr Longo did use his first appearance to flag potentially significant changes fo the financial advice industry which claims it has been forced to push up costs of advice after being hit with a wave of new regulations following multiple scandals.
“I am concerned about his sector, i think it’s really important that consumers have access to affordable advice,” Mr Longo said.
“We do have a complex regime and I think one of the challenges for ASIC and for policymakers is finding a way of making that regime more digestible.”
Sarah Danckert is a business reporter who specialises in investigations and corporate wrongdoing. She is a two-time Walkley Award winner, and has won five Quill Awards and two Kennedy Awards.
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