Federal Treasurer Josh Frydenberg has been told by the financial markets watchdog there is no need to ban short selling in the face of extreme price fluctuations caused by coronavirus fears.
Such has been the volatility in recent weeks – the Australian share market sank over eight per cent at one stage on Friday – that Mr Frydenberg sought advice on whether to stop the practice.
Short selling is where an investor sells a position in the market hoping shares in a company, for example, fall further so they can be bought at a cheaper price and close out the contract with a profit.
Former Labor treasurer Wayne Swan banned short selling during the 2008-2009 global financial crisis largely to protect the big banks from foreign raiders.
Mr Frydenberg told the Australian Financial Review he was advised by the Australian Securities and Investments Commission that “no change” was needed.
“Former Labor treasurer Wayne Swan banned short selling during the global financial crisis”To protect all publicly listed companies & ASIC wrongly advised against it # auspol https://t.co/oXtbV430Qz
— Wayne Swan (@SwannyQLD) March 13, 2020
“Our banking system is strong and well capitalised and corporate balance sheets are better than they were during the GFC,” he said.
The newspaper said Mr Frydenberg was conducting a phone link-up with Reserve Bank governor Philip Lowe and other regulators on Saturday after US markets closed, which again succumbed to a volatile session.
The US S&P 500 index finished 9.3 per cent higher on Friday, a staggering rebound from a 9.5 per cent fall earlier in the day. The index was 8.8 per cent down on the week.
The marked rebound came as US President Donald Trump declared COVID-19 pandemic a national emergency, and announced $50 billion for state and local governments to respond to the outbreak.
As a result, Australian share futures point to a 1.1 per cent rise when the market opens on Monday.
On Friday, the ASX 200 index finished 4.4 per cent higher after sinking by over eight per cent at one stage to its lowest level since 2016.