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Many market players in Australia are waiting to see whether the Australian Securities and Investment Commission (ASIC) will extend the ban on short selling or not. Meanwhile, Australian hedge funds are performing well again, and the Reserve Bank of Australia has decided to keep the benchmark interest rate unchanged.

Australian market focuses on nearly-expired short selling ban
With the Australian ban on covered short selling of financial stocks due to expire on Friday (06-Mar-09), speculation is mounting that it will be extended further, as ongoing market weakness and volatility are giving the ban's proponents additional ammunition, said Australia Fund Monitor (AFM) on 26-Feb-09.

On 21-Jan-09, ASIC extended the ban on short selling of financial securities until 06-Mar-09. The ban was initially scheduled to be lifted on 27-Jan-09.

Meanwhile, the Netherland’s Authority for the Financial Market has just extended its ban on the shorting of financials until June after ING and Aegon had come under renewed pressure.

David Murray, former CEO of the Commonwealth Bank, and now head of the government's superannuation fund, the Future Fund, supports the extension of the ban.

However, financial stocks in Australia have not been shown to have been protected by the ban while it was in place. This leads detractors of the ban to claim that the ban is a populist knee jerk reaction which is damaging price discovery, liquidity and Australia's reputation as a serious financial center.

At the same time they point out that as there are significant exclusions to the ban, such as non-financial securities, which prevented it from delivering the desired result.

Behind the scenes lobby for ban extension
A report by TheAustralian.news.com.au last week said there had been a lot of lobbying behind the scenes by Australia’s banks, listed property and struggling infrastructure trusts, to convince ASIC to extend the ban on short selling.

. But the hedge fund industry, which is struggling to survive as a big chunk of its business has been put on ice with the ban, is trying to call for the resumption of short selling.

Pro-short selling ban
According to TheAustralian.com.au, private companies have raised A$30bn in new capital since ASIC banned short selling in September 2008, with banks, insurance companies and listed property trusts accounting for more than half of the funds raised.

The report added that most of these companies were expected to come back to the market for more fund raising as the credit markets remained tight.

Australia’s hedge fund industry struggles
The ban on short selling came at the worst possible time for Australia’s $62bn hedge fund industry. Many hedge funds have already suspended redemptions due to an overwhelming number of requests for capital withdrawals.

The lifting of the ban is expected to somehow provide the hedge funds industry a sigh of relief, TheAustralian.com.news.au said.

Despite the ban, Australia’s hedge fund climbed 0.7% in January, according to AFM. The positive performance was led by real-estate, managed-future and currency strategy (Opalesque 13-Feb-09).

Eurekahedge's Australia /New Zealand index returned -21.05% in 2008.

Australia’s hedge fund assets fell by 18% in 2008 to A$65bn (US$42bn) (Opalesque 17-Feb-09). But AIMA Australia’s Chairman Kim Ivey told Bloomberg.com that he expected Australian hedge funds would attract a net inflow of cash in 2009 after record redemptions by overseas investors had led to the closure of at least 10 funds in the fourth quarter.

RBA leaves interest rate at 3.25%
The Reserve Bank of Australia (RBA) today (03-Mar-09) left its benchmark interest rate unchanged for the first time in seven months amid signs that the lowest borrowing costs in four decades may keep the economy out of recession, said Bloomberg.com.

Governor Glenn Stevens made the announcement in Sydney, even as many economists are looking at the interest rate to be cut to a record low 2.75%. Stevens cut the interest rate by four percentage points between September and February 2008. (Source)