Short selling of Cboe Australia unique products

The Corporations Act 2001 (Cth) and Corporations Regulations 2001 (Cth) impose both transactional and short position reporting requirements on Cboe Australia participants.

The short sale transaction reports for ASX listed/quoted products are reported to and published by ASX irrespective of whether they were traded on Cboe Australia or ASX.

The launch of Cboe Australia unique instruments has resulted in the introduction of a Cboe Australia short sale reporting facility for short sale activities in products that are quoted uniquely on Cboe Australia such as TraCRs and Warrants.

What is short selling?

Short selling is an activity where a person enters into an agreement to sell a security they do not currently own with a view to purchasing the security later at a lower price.

Short selling encourages liquidity and price efficiency in the market and can indicate what 'professional money' is doing. A large increase or decrease in the number of short positions a company has can be an early indicator of shifting investor sentiment.

The advantages of short selling include profiting from falling share prices in a falling market and the ability to hedge your portfolio with short positions to reduce the number of declines in trending markets. The disadvantages include administration costs and the risk of the price of a share increasing continuously.

Short sale transaction reporting

Short sale transaction reporting is the daily reporting of shares that are short sold by a participant. Participants with short positions in Cboe Australia unique products must lodge gross short sale transaction reports with Cboe Australia before 9am the day after the date of the short sale.

The reports lodged with Cboe Australia must contain the following information specified in regulation in 7.9.100:

• the Cboe Australia code;
• the investment product name;
• the total number of each investment product that will vest in the buyer under the arrangement.

Cboe Australia then publishes the total number of each kind of share short sold on a particular day (see reports above).

Short position reporting

Short position reporting is the reporting of the difference in the number of shares held by an investor or participant and the amount they have an obligation to deliver. Participants must lodge short positon reports (on their own behalf or investors' behalf) with ASIC before 9 am 3 days after the date of the short sale. Participants must send their short position reports to ASIC electronically using FIX protocol 'position report' messages. ASIC aggregates the reports and publishes short sale data showing the number of shares on issue currently reported to ASIC as short sold before 9 am 4 reporting days after the date of the short sale.

Failure to comply with the short selling provisions

Licensees that breach or are likely to breach their short sale reporting obligations maybe required to notify ASIC of that breach under s912 of the Corporations Act.