AUSTRALIA EXTENDS BAN ON SHORT SELLING FINANCIAL

UNCLAS CANBERRA 000079 SIPDIS SENSITIVE E.O. 12958: N/A TAGS: EFIN ECON AS SUBJECT: AUSTRALIA EXTENDS BAN ON SHORT SELLING FINANCIAL SHARES REF: 2008 CANBERRA 971 ¶1. (SBU) Summary: Australia has extended the ban on short-selling financial stocks until March 6, due to volatility in bank stocks internationally. Australian banks support the decision. Concern is growing about the ability of Australian companies to raise funds on international markets; the GOA is considering options. End summary. ¶2. (U) Late on Wednesday January 21 the Australian Investments and Securities Commission (ASIC) announced it would extend the ban on the covered short-selling of financial stocks until at least March 6. (Naked short sells of all stocks are no longer permitted.) The ban on short-selling shares in financial firms, which when it began in September (reftel) initially covered all shares, was due to expire next week. ¶3. (U) In its announcement (available at www.asic.gov.au), ASIC noted a recent increase in the volatility of financials, including in the US and UK. It also noted that the UK Financial Services Agency (FSA) had lifted its similar ban on January 16, but said it could not say whether FSA's decision had contributed to the recent upsurge in volatility. ASIC said it needed time to assess the markets and to see whether there were risks of predatory practices in Australian markets. It will make a decision closer to March 6 on whether to lift the ban then. ¶4. (U) Reaction has been predictable. The CEO of the Australian Bankers Association, David Bell, called ASIC's decision "prudent" in a week when Australian bank stocks had dropped over 6% over Tuesday and Wednesday. One banker told Embassy that ASIC had "no choice" but to extend the ban, given the volatility and recent developments in the UK. But the lobby group representing fund managers and hedge funds was critical, and said regulators should recognize the role short selling plays in maintaining liquidity. ¶5. (SBU) This comes during a week where concern about the ability of Australian companies, including banks, to access credit on foreign markets to finance debt and operations is palpable. Treasurer Wayne Swan said the GOA would act if foreign banks cut back their lending to Australian businesses, although he said there was adequate liquidity in the system. On January 22 Finance Minister Lindsay Tanner said the GOA would consider setting up a fund to lend directly to companies should foreign banks fail to roll over existing loans. The January 21 announcement by mining giant BHP Billiton that it would lay off 3300 people in its Australian operations (and 6000 around the world) contributed to the sense of unease. ¶6. (SBU) Comment: ASIC has been cautious, keeping an eye on international developments and worrying about how Australia's small market could be affected. Treasury contacts, although reluctant to go into details, told Embassy that the "usual" coordination took place, in other words indicating ASIC vetted this decision with Treasury, the Reserve Bank, and the Australian Prudential Regulatory Authority. We see no indications of problems in any of the major banks - or even minor ones. But the difficulty that even credit-worthy Qminor ones. But the difficulty that even credit-worthy Australian companies face in accessing foreign funds is worrying. CLUNE