ASIC Class Order [CO 10/289]

Administered by Department of the Treasury

Legislation au F2010L01077 Not in force Legislative Instrument

Legislation content

ASIC CLASS ORDER [CO 10/289]

EXPLANATORY STATEMENT

 

Prepared by the Australian Securities and Investments Commission

 

Corporations Act 2001

 

The Australian Securities and Investments Commission (ASIC) makes ASIC Class

Order [CO 10/289] under paragraph 1020F(1)(a) and (c) of the Corporations Act 2001 (Act).

 

Paragraph 1020F(1)(a) provides that ASIC may exempt a person or class of persons from all or specified provisions of Part 7.9 of the Act.

 

Paragraph 1020F(1)(c) provides that ASIC may declare that Part 7.9 applies in relation to a class of persons or financial products as if specified provisions of Part 7.9 were omitted, modified or varied as specified in the declaration.

 

1. Background

 

People sometimes sell (short sell) financial products that they do not own with a view to repurchasing them later at a lower price.

 

Section 1020B regulates the short selling of certain financial products (section 1020B products). That provision has the effect of prohibiting a person from selling (naked short selling) these financial products unless they have a “presently exercisable and unconditional right to vest” the product in the buyer.

 

Generally, the Act permits a person to execute a short sale (covered short sale) where the person relies on an existing securities lending arrangement to have a ‘presently exercisable and unconditional right to vest’ the products in the buyer at the time of sale.

 

If a seller makes a covered short sale of a section 1020B product on a licensed market, the seller may be required to report their short position to ASIC in accordance with Division 5B of Part 7.9 of the Act and Division 15 of Part 7.9 of the Corporations Regulations 2001 (Regulations).

 

On 1 April 2010, the Corporations Amendment Regulations 2009 (No. 8) amended the Regulations to facilitate reporting of short positions. ASIC Class Order [CO 10/29] deferred the commencement of short position reporting from 1 April 2010 to 1 June 2010.

 

A short position in relation to a section 1020B product is where the quantity of the product which a person has is less than the quantity of the product which the person has an obligation to deliver.

 

A naked short sale made in reliance on ASIC relief does not trigger the obligation under s1020AB(3) of the Act to report a short position to ASIC.

 

ASIC Class Order [CO 08/764] permits naked short sales resulting from the exercise of an ASX exchange-traded option (eg. the exercise of a put option or the sale of a call option which is later exercised).

 

ASIC Class Order [CO 09/774] permits a market maker to make naked short sales of a security or managed investment product to hedge risk from its market making activities.

 

2. Purpose of the class order

 

The purpose of this class order is to:

 

(a)  require a person to give particulars of its short position to ASIC where:

 

(i)                 the person makes a naked ETO short sale in reliance on [CO 08/764]; or

 

(ii)               the person makes a naked short sale in reliance on [CO 09/774]; and

 

(b)  clarify that a short position in relation to a section 1020B product is to be calculated by reference to covered short sales and permitted naked short sales made by the seller.

 

3. Operation of the class order

 

Variation of [CO 08/764]

 

This class order varies [CO 08/764] by adding a condition requiring a person who makes a naked ETO short sale in reliance on the relief to give particulars of their short position to ASIC. A person does not have to comply with the condition if:

 

(a) the person has an obligation under s1020AB(3) to give the particulars; or

 

(b) the short position does not exceed the reporting threshold.

 

Variation of [CO 09/774]

 

This class order varies [CO 09/774] by adding a condition requiring a person who makes a naked short sale in reliance on the relief to give particulars of their short position to ASIC. A person does not have to comply with the condition if:

 

(c) the person has an obligation under s1020AB(3) to give the particulars; or

 

(d) the short position does not exceed the reporting threshold.

 

Variation of [CO 10/29]

 

This class order varies [CO 10/29] to clarify that:

 

(e) a short position in relation to a section 1020B product is to be calculated by reference to covered short sales and permitted naked short sales made by the seller; and

 

(f) ASIC must disclose short positions reported under the Act and under [CO 08/764] and [CO 09/774].

 

4. Commencement

 

The provisions of this class order will commence as follows:

 

(a) paragraphs 1, 2, 3 and 6 commence on the date the instrument is registered under the Legislative Instruments Act 2003;

 

(b) paragraphs 4 and 5 commence on the later of:

 

(i) the date the instrument is registered under the Legislative Instruments Act 2003; or

 

(ii) 1 June 2010.

 

5. Consultation

 

In October 2009 Treasury published Short Selling Disclosure Regulations; a paper seeking industry input on technical issues relating to draft disclosure regulations for short selling, including the proposal to require short position reporting. The submitting parties were generally supportive of the proposed short position reporting requirement. Submissions to the paper are available at www.treasury.gov.au.

Overview

The ASIC Class Order [CO 10/289] was enacted under the Corporations Act 2001, with the primary objective of addressing the need for transparency in the reporting of short positions in financial products, particularly those involving naked short sales. This class order was issued by the Australian Securities and Investments Commission (ASIC), which is responsible for enforcing the Act and ensuring compliance with financial regulations. The policy objective behind this legislation was to enhance market transparency and protect investors by requiring entities to disclose their short positions to ASIC when making certain types of short sales, thereby providing clearer information about market activities. The introduction of this class order was in response to the need to regulate short selling practices and ensure that market participants report their short positions accurately, particularly in light of the amendments to the Corporations Regulations 2009 that facilitated such reporting.

Scope and Application

ASIC Class Order [CO 10/289] applies to individuals and entities engaged in the short selling of certain financial products, specifically those identified under section 1020B of the Corporations Act 2001. This includes both covered short sales, where sellers have an existing securities lending arrangement, and naked short sales, where sellers rely on specific ASIC reliefs such as those provided in Class Orders [CO 08/764] and [CO 09/774]. The geographic reach of this legislation is nationwide, applying across all states and territories within Australia. Exemptions exist for entities that already have an obligation to report their short positions under section 1020AB(3) of the Act or for those whose short positions do not exceed the specified reporting threshold. The class order extends the application of the Corporations Act and related regulations by clarifying the calculation of short positions in relation to section 1020B products and by imposing additional reporting obligations on certain naked short sellers. It also mandates that ASIC must disclose short positions reported under both the Act and the referenced class orders. The provisions of this class order commenced on the date of registration under the Legislative Instruments Act 2003, with specific paragraphs becoming effective from 1 June 2010.

Key Provisions

The ASIC Class Order [CO 10/289] primarily addresses the reporting requirements for short positions in financial products, particularly focusing on naked short sales made under certain conditions. Section 1020B of the Corporations Act 2001 regulates the short selling of specified financial products, requiring sellers to have a “presently exercisable and unconditional right to vest” the products in the buyer. This provision is intended to prevent naked short selling, where sellers do not own the products they are selling. However, covered short sales, where sellers rely on existing securities lending arrangements, are permitted. When a covered short sale of a section 1020B product occurs on a licensed market, the seller may need to report their short position to ASIC. The Class Order introduces additional reporting requirements for naked short sales made under specific conditions. The Class Order imposes specific obligations on persons making naked short sales under ASIC Class Order [CO 08/764] (which permits naked short sales resulting from the exercise of an ASX exchange-traded option) and ASIC Class Order [CO 09/774] (which allows market makers to make naked short sales to hedge risk). These persons must provide particulars of their short position to ASIC, unless they are already obligated to do so under section 1020AB(3) of the Act or their short position does not exceed the reporting threshold. Additionally, the Class Order clarifies how short positions in relation to section 1020B products are calculated, by considering both covered short sales and permitted naked short sales made by the seller. The Act does not explicitly outline specific offences, penalties, or civil/criminal consequences for breaches of this Class Order. However, non-compliance with reporting requirements or other provisions of the Corporations Act 2001 can result in significant legal consequences. For example, under section 1317E, a person who contravenes a civil penalty provision can be subject to pecuniary penalties up to the greater of three times the benefit obtained, $1.8 million, or 10% of the person's annual turnover if a body corporate. Additionally, ASIC has the authority to seek injunctive or other equitable relief under section 1317G to prevent or redress contraventions of the Act. The Class Order aims to enhance transparency and regulation in the financial market by ensuring that relevant short positions are reported to ASIC. This helps maintain market integrity and protect investors by providing better oversight of short selling activities.

Legal classification tags

Area of Law
Corporate Law & Governance
Instrument
Regulation
Concepts
Reporting & Disclosure Obligations
Enforcement Powers
Regulatory Standards

Interactions

Authorises

All Versions

Sourced from the Federal Register of Legislation at 26 August 2026. For the latest information on Australian Government law please go to https://www.legislation.gov.au.