Monday May 25, 2009, 9:37 am
The corporate regulator is lifting the ban on 'short selling' financial stocks when the share market opens today.
From 10:00am (AEST) investors will once more be able to effectively make bets on the share price of Australian financial stocks falling.
This is usually done by borrowing shares from a broker for a fixed period of time, selling those shares to push down the company's price, and then buying back the shares at the cheaper price to return to their owner, while pocketing the difference.
Short selling was banned by the Australian Securities and Investments Commission in September last year in an attempt to reduce instability in the share price of financial stocks after the collapse of Lehman Brothers.
The ban was also designed to reduce the chances of 'rumourtrage' - which is where a trader may spread negative rumours about a company that he or she is trying to short sell.
Similar steps were taken by other countries to temporarily ban short selling, including in the US and Britain, however most of these bans had already been lifted.
ASIC says it is lifting the ban because market conditions have improved.
"ASIC has reviewed market conditions and considers that the balance between market efficiency and potential systemic concern has now moved in favour of the ban being lifted," ASIC said in a statement.
However it has warned that it "will not hesitate to reimpose the ban immediately... if it considers market conditions warrant such action."
Australia is still outlawing most forms of 'naked' short selling, which is where the short seller does not borrow the shares.