Most recently our Corporate Governance Minister, Nick Sherry, in a speech delivered by Treasury head of corporate regulation Geoff Miller, described short selling as “an important financial tool in promoting market efficiency” and a way of “encouraging” the correct pricing of stocks.

However, in Britain the Financial Services Authority is under sustained attack for both its new rules aimed at preventing some short selling, which came into force on June 20, and the allegedly poor drafting of those rules that has left outraged firms clamouring for clarification.

The British approach has also been echoed in the United States, where federal regulators are under pressure to limit the damage of the sub-prime credit crunch on the two main housing lenders, Fannie Mae and Freddie Mac, which together control about half of US mortgage lending. The regulators are moving to ban “naked” short selling, where traders sell shares without first “borrowing” them, usually from a bank, because of damaging volatility that has destabilised the market for these government-backed operators.

The approach in the UK is aimed at requiring investors to reveal when they hold “significant” short positions in companies engaged in rights issues, and is intended to stop opportunistic traders gaining windfall profits by creating chaos during a company’s share offering.

Back in Australia, Miller said disclosure of “covered” short selling (where the trader has borrowed the shares) would be enhanced: “Treasury and ASIC are … investigating the best legislative option to address this issue and the detail of disclosure requirements.”