The decision follows a four-month consultation period between ASX and ASIC. The revised procedures will take effect on 1 October 2002.
The new regime will make ASX's ETF short-selling regime consistent with other jurisdictions such as Canada and the United States, where ETFs have proven extremely successful as institutional risk management and hedging tools.
Under the new guidelines, participating organisations of the ASX may short-sell an approved ETF without entering into a script-lending arrangement. The new guidelines also allow the short-selling party to initiate a trade (shorting on the downtick) to gain immediate execution. The normal short-selling margin requirements of 20% and daily short-selling reporting requirements will continue to apply.
The open-ended nature of the ETF structure, combined with the continuous availability of in-specie issue and redemptions, means that price manipulation of an ETF should not be achievable - and therefore additional flexibility in trading practices can be provided.
The regulatory change will allow institutions to use ETFs as a risk management or hedging mechanism by going short the ETF. Similar strategies can be employed with index options and futures contracts.
The change currently applies to 'classical' ETFs which mirror an index and utilise a continuous in-specie issue and redemption facility. Other ETFs that employ cash issue and redemptions and/or utilise an active management style are currently unaffected.