Last-minute ban confuses Aussie traders-SYDNEY

Last-minute ban confuses Aussie traders-SYDNEY 

SYDNEY: Australia’s stock exchange was thrown into confusion yesterday after a last-minute ban on short-selling, aimed at saving it from an onslaught of selling by global hedge funds, also tripped up genuine investors.
The market delayed its opening by nearly one hour as fund managers, which normally lend stocks to short-sellers and had shares out on loan when the ban was announced over the weekend, wondered what to do next.

‘We’re all flying in the dark,’ said Morgan Stanley equity strategist Gerard Minack. ‘We’ve never seen a market without short-selling.’

After Friday’s close, the Australian Securities and Investment Commission slapped bans on two forms of short-selling, following bans in US and European markets to head off hedge funds eager to profit from the global credit crisis.

The ban included ‘covered’ short-selling, whereby hedge funds borrow shares from an institutional investor and sell them in the market in the hope of buying them back later at a lower price. The hedge funds then return the shares and take a cash profit.

But short-selling is also used to hedge a genuine investment, in order to protect it from sliding share prices, and many long-term investors, including pension funds, were caught unprepared yesterday when the bans suddenly took effect.

Before trade finally began yesterday, the commission ruled that short positions that had already been opened with the aim of hedging an investment would be exempt from the ban.

‘Its all new stuff for the whole market. We have never seen anything like it before.’ Mr Andrew Gluskie, a fund manager at White Funds Management said.

REUTERS

 
Source : Straits Times  - 23 Sept 2008

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