From 1 June 2010 all short sellers of ASX listed securities must report their short positions to ASIC. There are unlikely to be any further delays in the start date, which was originally 1 April 2010, however ASIC has announced that they will adopt a limited no-action position until 21 June. ASIC will now publish aggregate short position data from 22 June 2010.
The short position reporting requirements represent the final component of the short selling disclosure regime introduced by the Australian Government in response to the financial crisis and other developments in the Australian market. They supplement daily transactional reporting of covered short selling to ASX, which has been in place for some time.
ASIC has indicated that they are cognisant of the significant changes industry has been making to their systems to seek to comply with the positional reporting obligations and will continue to provide support for the smooth transition to a fully effective system for reporting short positions.
ASIC has announced on Friday, 28 May 2010, that they do not intend to take action in relation to breaches of the short position reporting requirements until 21 June where “there has clearly been effort to have systems ready to report short positions as required”. ASIC may, however, approach entities about the short positions they hold and request this information. There should be adequate records available to be provided to ASIC upon request.
Who must report?
Each “person” must assess their own short position and separately report it to ASIC if it exceeds the reporting threshold. For fund managers, this requires an assessment of the structure of each fund (e.g. limited partnerships, companies or trusts) and whether they are a “person” within the meaning of the legislation.
What is a short position?
A short position arises where the quantity of the securities which a person has is less than the quantity of the securities which the person has an obligation to deliver.
A person has the securities if:
the person is holding the securities on the person’s own behalf (it is expected that trustees, other than bare trustees will, however be able to take into account securities they hold as trustee); or
another person is holding the securities on the person’s behalf; or
the person has entered into an agreement to buy the securities but has not received them; or
the person has vested title in the securities in a borrower, or in an entity nominated by the borrower, under a securities lending arrangement.
A person has an obligation to deliver the securities where the person:
has the obligation to deliver under a sale agreement where the securities have not been delivered; or
has an obligation to vest title in a lender under a securities lending arrangement (it is expected this will be clarified to cover an obligation which is contingent on the securities being recalled by the lender); or
has any other non-contingent legal obligation to deliver.
A synthetic short position (e.g. a swap) that can only be settled in cash should not be taken into account in calculating the seller’s short position for reporting purposes.
Is there a reporting threshold?
A short position is not required to be reported if both the following are satisfied:
the value of the position is A$100,000 or less; and
the position is 0.01% or less of the total quoted securities in that class.
When must the short position be reported to ASIC?
When a reportable short position is first created, the short position as at 7.00pm must be reported to ASIC by 9.00am on the third reporting day after the short position is first created. If the person continues to hold a reportable short position on subsequent reporting days, the short position on each subsequent reporting day must be reported to ASIC by 9.00am three reporting days after that subsequent day.
Special transitional arrangements apply for existing short positions arising from trades executed before 1 June 2010. These short positions as at 7.00pm on 1 June must be reported to ASIC by 9.00am on 4 June 2010. If the person continues to hold the short position on subsequent reporting days after 1 June 2010, the short position on each subsequent reporting day must be reported to ASIC by 9.00am three reporting days after that subsequent day.
How are reports lodged?
If a short seller does not have an Australian Company Number (ACN), Australian Registered Body Number (ARBN), or a SWIFT Bank Identifier Code (BIC), they must register with ASIC to obtain a unique identifier.
Short position reports must be received by ASIC under the Financial Information eXchange (FIX) protocol. The FIX interface must be accredited by ASIC or alternatively short sellers can lodge reports through accredited third parties offering a reporting service.