Explanatory Statement
ASIC Corporations (Amendment) Instrument 2026/24
This is the Explanatory Statement for ASIC Corporations (Amendment) Instrument 2026/24 (Amendment Instrument).
The Explanatory Statement is approved by the Australian Securities and Investments Commission (ASIC).
Summary
1. Naked short selling of certain financial products is prohibited under subsection 1020B(2) of the Corporations Act 2001 (Corporations Act). The ASIC Corporations (Short Selling) Instrument 2018/745 (the Principal Instrument) provides legislative relief from this prohibition to permit, amongst other things, a naked short sale by a market maker of:
(a) an exchange traded fund (ETF) if the sale is in the course of making a market in the shorted product on a financial market operated by ASX Limited or Cboe Australia Pty Ltd (ETF market maker exemption) (see section 5 of the Principal Instrument); and
(b) a financial product which is a constituent of the S&P/ASX 300 Index or an interest in the SPRD S&P/ASX 200 Fund (STW) or other approved ETFs for the purpose of hedging risks arising from market making activities (Hedging Exemption) (see section 6 of the Principal Instrument).
2. The Amendment Instrument amends the Principal Instrument to:
(a) extend the exemption for market makers of ETFs to include market makers of specified structured products (the amendments introduce “exchange traded product” or “ETP” to reflect specified structured products);
(b) include Global X Physical Gold Structured as an approved ETP for hedging purposes during the course of market making in a listed option;
(c) align the market maker exemption for transactional short sales to also include market makers of specified structured products; and
(d) make inconsequential amendments to ensure the language of the Principal Instrument is market neutral, where appropriate and omitting references to “managed funds” to reflect current naming conventions for exchange traded products.
Purpose of the instrument
Background
3. Subsection 1020B(2) of the Corporations Act prohibits the “naked” short selling of certain financial products. A “naked” short sale is a sale of a financial product made in circumstances where the seller does not have a presently exercisable and unconditional right to vest the financial product in the buyer at the time of the sale.
4. The Principal Instrument:
(a) provides legislative relief from the naked short selling prohibition in very specific circumstances, including but not limited to, the ETF market maker exemption and Hedging Exemption;
(b) provides exemptions from the requirements to report short transactions in specific circumstances; and
(c) modifies the operation of requirements for short position reporting and disclosures.
5. The purpose of the Amending Instrument is to amend the ETF market maker exemption, Hedging Exemption, as well as aligning these with the market maker exemption of transactional short sales as summarised below.
ETF market maker exemption
6. The ETF market maker exemption, which is set out in section 5 of the Principal Instrument, conditionally permits eligible market makers to naked short sell in certain ETFs during the course of their market making in those products. This is achieved by notionally inserting subsections 1020B(4A) to (4D) after subsection 1020B(4) of the Corporations Act.
7. The exemption was provided by ASIC to provide more certainty and efficiency for ETF market makers when performing their market making obligations. ETF market makers provide benefits of liquidity to the market.
8. Extending the exemption to market makers of specified structured products, also referred to as ‘metal securities’ is consistent with the policy rationale for providing the exemption to ETF market makers. The specified structured products have a similar creation and redemption process as ETFs, meaning the risk of settlement failure is low and the liquidity benefits of market making outweigh the risk to the market of settlement failure of the short sale.
Hedging Exemption
9. The Hedging Exemption which is set out in section 6 of the Principal Instrument, permits a market maker to naked short sell a financial product which is a constituent of the S&P/ASX 300 Index, an interest in the STW or an approved ETF for the purposes of hedging risks arising from market making activities. This is achieved by notionally inserting subsections 1020B(5A) to (5J) after subsection 1020B(4) of the Corporations Act.
10. The Hedging Exemption is subject to conditions to mitigate the risk of settlement failure that arises from naked short selling, and to ensure that the financial product can be unconditionally vested in the purchaser at the time of delivery. A market maker relying on the Hedging exemption is also required to provide particulars of its short position in relation to the shorted product.
11. ASIC received an application to extend the Hedging exemption to permit a naked short sale by a market maker in Global X Physical Gold Structured, a listed structured product also known as a ‘metal security’ for the purposes of hedging risks arising from market making activities in an exchange traded option (ETO) whose underlying security is Global X Physical Gold Structured.
12. ASIC considers that the benefits of market making activity outweigh the risks of settlement failure (which are low because of the highly liquid nature of the permitted shorted products and the proposed new product Global X Physical GOLD Structured). The extension will be subject to the same conditions that currently apply to other permitted products.
Market maker short sale transactions
13. Section 13 of the Principal Instrument provide an exemption from the short sale transaction reporting requirements. It exempts an ETF market maker from the requirement to give particulars specified in paragraphs 7.9.100(1)(a) to (c) of the Corporations Regulations 2001 (Regulations).
14. The Amendment Instrument amends the Principal Instrument so the exemption also applies to market makers of specified structured products. The exemption promotes liquidity and confidence in Australian financial markets by facilitating market making activities. Short selling by a market maker is not generally indicative of a directional view and accordingly is less informative to the market. We consider that the benefits of facilitating market making outweigh any effect upon published reports.
Consultation
15. ASIC conducted a targeted consultation with those parties directly affected by the proposed amendments and other stakeholders including the issuer, market makers and a market operator. Those who responded were supportive of this proposal.
16. The Office of Impact Analysis has confirmed that a regulation impact statement is not required because the Amendment Instrument will impose only minor and machinery impacts on business, community organisations or individuals.
17. The background to the creation of the ETF market maker exemption, Hedging exemption and market maker short sale transaction exemption is set out under ASIC Consultation Paper 299 Short selling: Naked short selling relief, position reporting amendments and sunsetting class orders.
Operation of the instrument
18. Items 1, 2, 3, 4, 5, 6, 7, 8, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 23, 25, 50 and 55 in Schedule 1 make amendments to sections 5 and 13 of the Principal Instrument as relevant, to reflect:
(a) that the exemption should include market makers of specified structured products and not be limited only to market makers of ETFs; and
(b) current product naming conventions by removing the reference to “managed funds” which is no longer distinguished in the product labelling of certain ETFs.
19. Items 9, 10, 36, 38, 39, 40, 44, 46, 47, 48 and 49 in Schedule 1 amend sections 5, 10, 11 and 12 of the Principal Instrument to ensure more market neutral language such as by omitting “on the financial market operated by ASX Limited” or “Cboe Australia Pty Ltd” and substituting with “on a declared financial market” and where appropriate adding or omitting “relevant”.
20. Item 22 in Schedule 1 inserts definition “precious metal” in section 5 of the Principal Instrument, setting out the precious metals that a specified structured product derives its value from.
21. Item 24 in Schedule 1 inserts definition “specified structured product” under section 5 of the Principal Instrument to make clear the type of structured product that is captured.
22. Items 26, 27, 29, 30, 31, 32, 33, 34 and 35 in Schedule 1 amends section 6 of the Principal Instrument to reflect the inclusion of Global X Physical Gold Structured as an approved ETO for the purposes of short selling by ETO market makers.
23. Items 28 & 37 in Schedule 1, omits the notes after notional subsection 1020B(5A)(c) and after section 10 (2) of the Principal Instrument and substitutes with a new note to reflect changes in the corporate name of Standard and Poor’s (now S&P Dow Jones Indices).
24. Items 41 to 43 and 45 in Schedule 1, amend section 11 of the Principal Instrument so that definitions for “listing body” and “listing scheme” are consistent with the Act.
25. Items 51 to 54 in Schedule 1, amend section 13 of the Principal Instrument so that the exemption for short sale transaction reporting for ETF market makers applies to market makers of specified structured products.
Legislative instrument and primary legislation
26. The subject matter and policy implemented by this instrument is more appropriate for a legislative instrument rather than primary legislation. This is because the matters contained in the Amendment Instrument for the Hedging Exemption and market maker exemption affect a relatively small subset of Australian financial services licensees, namely ETO and ETP market makers who have been appointed by a market operator or the issuer of the ETP, to make a market in those products. If the matters in the Amendment Instrument were to be inserted into the primary legislation, they would insert, into an already complex statutory framework, a set of specific provisions that would apply only to a relatively small group of entities.
27. In the absence of the notional modifications made by the Amendment Instrument to subsection 1020B(2) of the Corporations Act:
(a) ETO market makers appointed to generate liquidity in the approved ETOs will be unable to adequately hedge exposure risks during the course of their market making. This would act as a disincentive for ETO market makers to provide market making services;
(b) Similarly to ETF market makers who currently benefit from the relief, market makers of specified structured products provide benefits of liquidity to the market. The exemption provides more certainty and efficiency for market makers of specified structured products;
(c) ETO market makers and market makers of specified structured products would need to apply for individual short selling relief for the approved ETPs, in order to efficiently make a market in the listed ETOs or the specified structured products. Providing the relief in a legislative instrument is more transparent and allows ASIC to amend the relief, to respond in a flexible and timely way for additional suitable underlying products that are permitted to be short sold.
28. It will be a matter for the Government and for Parliament as to whether the Act or Regulations may be amended in future to include the relief in the instrument.
Duration of the instrument
29. The duration of the amendments made by this Amendment Instrument align with the duration of the Principal Instrument, which this Amendment Instrument amends. The Principal Instrument will automatically sunset on 1 October 2028, in accordance with section 50 of the Legislation Act 2003.
Legislative authority
30. The Amendment Instrument amends the Principal Instrument. Where an Act confers a power to make an instrument, the power is to be constructed as including a power exercisable in the like manner and subject to the like conditions to amend the instrument: see subsection 33(3) of the Acts Interpretation Act 1901 (as in force as at 1 January 2005, per section 5C of the Corporations Act).
31. ASIC makes this amending instrument under subsection 1020F(1) of the Corporations Act.
32. Paragraphs 1020F(1)(a) and (b) of the Corporations Act provide that ASIC may exempt a person, a class of persons, a financial product or class of financial products from provisions of Part 7.9 of the Corporations Act.
33. Paragraph 1020F(1)(c) of the Corporations Act provides that ASIC may declare that Part 7.9 of the Act applies in relation to a person or a financial product or a class of persons or financial products, as if specified provisions were omitted, modified or varied as specified in the declaration.
34. The Amendment Instrument is a disallowable legislative instrument.
Statement of Compatibility with Human Rights
35. The Explanatory Statement for a disallowable legislative instrument must contain a Statement of Compatibility with Human Rights under subsection 9(1) of the Human Rights (Parliamentary Scrutiny) Act 2011. A Statement of Compatibility with Human Rights is in the Attachment.
Attachment
Statement of Compatibility with Human Rights
This Statement of Compatibility with Human Rights is prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
ASIC Corporations (Amendment) Instrument 2026/24(Amendment Instrument)
Overview
1. Naked short selling of certain financial products is prohibited under subsection 1020B(2) of the Corporations Act 2001 (Corporations Act). The ASIC Corporations (Short Selling) Instrument 2018/745 (the Principal Instrument) provides:
a. in very specific circumstances, naked short selling relief, including but not limited to, certain exemptions for market makers, so that market makers have efficiency and certainty when providing liquidity to the market;
b. exemptions from the requirements to report short transactions by market makers in specific circumstances; and
c. modifications to the operation of requirements for short position reporting and disclosures.
2. The purpose of the Amendment Instrument is to:
a. extend the exemption for market makers of ETFs to include market makers of specified structured products (the amendments introduce “exchange traded product” or “ETP” to reflect both categories of ETFs and specified structured products;
b. include Global X Physical Gold Structured as an approved ETP for hedging purposes during the course of market making in a listed option;
c. align the market maker exemption for transactional short sales to also include market makers of specified structured products; and
d. make inconsequential amendments to ensure the language of the Principal Instrument is market neutral, where appropriate and to reflect that managed funds are the same as an ETF.
Assessment of human rights implications
3. This instrument does not engage any of the applicable rights or freedoms.
Conclusion
4. This instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.