No wonder the market couldn’t open on time this morning — those supposed to be running it don’t know what they’re doing. You have to admire ASIC’s consistency though — Firepower, rubbish mezzanine finance debentures, real estate spruikers, short selling, it’s haplessly behind the game by a year or two on just about everything.

The ASX performance is more understandable: if you combine the jobs of poacher and gamekeeper, you’re going to have the odd conflict of interest. Sure, the intent of short selling regulations has been blatantly and consistently ignored for years and with steadily increasing urgency, but the ASX makes money out of trading, so let’s just turn a blind eye and count the profit.

But how ridiculous that these hapless “authorities” go completely over the top when they do belatedly jump on the global anti-short-selling bandwagon.

And just what prompted the big leap from Friday’s temporary ban on naked shorts to yesterday’s escalation to a total ban on all short selling, naked, covered, or suggestively draped in a little lace somewhere in between? Marvellous what a pile of pressure on Macquarie Bank seems to achieve after the watchpuppies had otherwise been lying doggo, so to speak.

We now have the second most restricted market in the world — long only for at least the next 30 days. Only Russia has gone further: they banned trading altogether last week. Maybe that’s what ASIC is eventually aiming for.

It’s one thing to try to spike the manipulators’ drinks, to enforce — rigorously — full disclosure, but another to close down totally legitimate market activity. And as of this morning, it remains to be seen just how several aspects of it might work.

For a start, ASIC has just wiped out a whole pile of risk management facilities used by financial intermediaries, totally legitimate hedging operations. Commerce is being seriously stifled, and it goes without saying that most of the horses have long since decamped anyway.

Where does this leave short CFDs (contracts for difference), for example? Could it bring into question the liquidity of CFD market makers, the glorified and geared bookies of equities trading? They’ve suddenly lost half their potential market and are facing big payouts to the longs on the present relief rally.

And there are the completely reasonable long/short funds to consider. These particular creatures try to be market neutral by, for example, taking a view that Bank A is better run and has brighter prospects than Bank B and therefore will outperform Bank B whether the market is rising or falling. They go long Bank A and short Bank B, so that they don’t care what the market overall might do. They make, or lose, money on the quality the assessment of the two banks’ relative strengths. Nothing wrong with that, but they’ve just had their business banned.

Short-term long-side traders might take their ASIC windfall this morning and run, but longer-term investors could be regretful. The Pascoe family super fund has been occasionally buying stocks as the market has been falling, the shorts providing opportunities for anyone with an eye to value and the longer term.

And when this crisis finally passes, what damage might have been done to Australia’s oft-mouthed ambitions to be a regional financial centre. Anyone care to set up a long/short fund here again? Can you trust that this market will have sufficient liquidity?

Oh well, Macquarie Bank will be relieved. Indeed, maybe this can be called the Relief of Macquarie.

Which again makes me wonder: why wait until after the near-catastrophe last week, until after the long-awaited US fix goes in to quarantine poisonous mortgage related securities? A MacBank conspiracy or stuff-up?

Well, ASIC’s involved — I’d vote for the latter.

Peter Fray

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