On Friday the Government banned so-called naked short sales, which make up a small part of the Australian market, but merely tightened its disclosure rules on covered short selling, The Australian reported.
Naked short sellers sell shares they do not own with the hope of buying them back later at lower prices; covered sellers insure their position by borrowing shares.
Last night, this was taken a step further with a ban on short sales on all Australian stocks for at least 30 days in a move aimed at protecting Australia from being attacked by global hedge funds. The ban will be reviewed after 30 days to determine whether it should be eased by limiting it to financial stocks.
Australia has gone further than any other country, banning short selling on all 2600-odd stocks listed here, whereas in the US and Britain short selling has been banned only in financial stocks such as banks.
Last week, the British and US governments imposed bans in the wake of the global meltdown in banking and other shares. Other countries followed, including Canada and Germany.
The latter moves prompted action by the Rudd Government and the Australian Securities and Investments Commission. The ban was extended because they were worried that by limiting controls on financial stocks, it would put more pressure on other stocks such as mining and real estate.
ASIC chairman Tony D'Aloisio said in a statement last night that "in light of the action taken by other regulators we need a circuit-breaker to assist in maintaining and restoring confidence".
Australian regulators also found late on Friday that they were being effectively outbid, when shortly after their announcement US regulators banned short selling in all financial stocks.
Although the US share market had strong rises on Thursday and Friday, the staggering events of last week, most particularly the $US85 billion ($102.5 billion) bailout of insurer American International Group, have left investors more skittish than they have been for decades.
The Bush administration is asking Congress for more than $US700 billion to rescue the US economy in an unprecedented bailout, handing a huge advantage to Democrats in the imminent presidential election.
While details of the rescue package are yet to be hammered out, news that relief is on the way should lift Australian stocks sharply higher today, adding to the gains made on Friday after central banks around the world pumped a combined $228 billion into money markets to shore up the financial system.
The White House has so far drafted just a three-page plan that amounts to the costliest taxpayer-funded effort in history to reflate the US banking system and stop the economy from plunging into a depression like that witnessed in the 1930s.
Senior White House officials and the chairman of the Federal Reserve, Ben Bernanke, have been providing stark warnings to the US Congress about the consequences of not agreeing to a bailout, the cost of which, for example, is 35 per cent more than next year's budget for the entire US military.
"If it doesn't pass, then heaven help us all," US Treasury Secretary Henry Paulson told legislators in meetings while Dr Bernanke - who has extensively studied the Great Depression - is said to have given a chilling description of the problems and told legislators "if we don't do this, we risk an uncertain fate".
While some warn that the final bill for taxpayers will end up being in the trillions, global financial markets are cheering the new plan. "We should see some great gains - we haven't seen anything like the rise in the US and Europe, and our market could be up 150 points or more," CommSec senior analyst Craig James said yesterday.
The Australian stock market surged by 4.3 per cent on Friday, bouncing back from a 34-month low on the back of the co-ordinated injection of liquidity from the world's central banks.
Financial stocks were expected to be the key beneficiaries today, Mr James said, while gold stocks could be held back by a sharp fall in the gold price, which fell as much as 7.6 per cent to $US828.50 on Friday on news of the massive US bailout.
Read the full story in The Australian
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