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ASIC increases short selling surveillance

ASIC is putting short sellers on notice, warning them that any information released on a target company must be accurate and objective.

The corporate watchdog outlined several areas that it will keep an eye on in the newly released Information Sheet 255 Activist short selling campaigns in Australia (INFO 255).

ASIC wrote that short sellers must verify their information and must fact-check these against the target entity.

"Providers of short reports should avoid being selective in deploying only facts that support their short thesis while ignoring facts that run counter to the thesis. Engaging with only a small and select sample of clients, ex-employees or contracted parties may not be representative of issues across the entire entity," the report read.

Another requirement is that short seller reports must be released outside of Australian trading hours and not immediately before the market opens. This is so that the target entity can prepare a response and that the market can be fully informed when the short report is released.

ASIC is well aware of the impact short reports have on the share price.

The possession of information about the impending publication of a short report may amount to possession of inside information, it said, noting that there is high risk that possessing such information could breach insider trading prohibitions.

ASIC commissioner Cathie Armour said investors expect to transact in a fair and informed market.

"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. 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," Armour said.

Read more: ASICCathie Armour