Short sellers who run public campaigns to pull down the price of an ASX share have been put on notice by the corporate regulator.
In recent years there have been several instances of short sellers releasing reports about the downsides of a company, affecting the stock price.
A classic example from January was when Viceroy Research put out a short report on Tyro Payments Ltd (ASX: TYR). The payment company’s shares plunged 12% before a trading halt was implemented.
The Australian Securities and Investments Commission (ASIC) has apparently been watching these campaigns with interest. The regulator on Tuesday released new guidelines for activist short sellers.
ASIC commissioner Cathie Armour acknowledged that short sellers and their views can contribute to the public’s accurate understanding of an investment.
But a line is crossed when the campaign becomes reckless.
“When activist short sellers provide accurate and meaningful new information, they can have a positive impact on price formation and market integrity as they may counterbalance excessive market optimism,” she said.
“However, activist short sellers can also unfairly distort the price of a target entity’s securities, which is harmful to the integrity of our markets.”
New guidelines for activist short sellers
ASIC’s new guidelines made the regulator’s expectations clearer about short seller reports.
The main points are:
- Short reports to be released outside ASX trading hours, and not just before the market opens
- Using reliable information to assess company’s fortunes
- Avoiding ‘overly emotive’ language
- Fact-checking with the target company
- Disclosure of conflicts of interest — such as the author’s short position
Activist short sellers were warned about the cheeky practice of labelling a report “Not intended for Australian investors”.
“A short report distributed from outside Australia that contains false and misleading statements may be in breach of the Corporations Act in spite of such a disclaimer,” the ASIC guidelines read.
The regulator also advises targeted ASX companies to immediately place shares into a trading halt when they find out the existence of a short report. This is to avoid unwarranted damage to the stock and to allow time for the business to respond to the claims.