ASIC says GameStop-style incident unlikely to occur in Australia
The Australian Securities and Investments Commission (ASIC) says that a GameStop-style incident is unlikely to occur in Australia to the same extent due to the Australian regulatory framework, controls that Australian exchanges have in place, and market practice.
According to the regulator, Australian share markets are less susceptible to short squeezes thanks to lower levels of shorting of ASX stocks (generally under 15%, compared to the reported 140% in GameStop).
ASIC also notes that naked short selling is prohibited in Australia. Most short sales need to be covered (e.g. by stock lending) prior to the short sale. This compares to a more flexible ‘locate’ requirement in the US payment for order flow not being allowed, and brokerage not being free options activity in Australia being significantly lower than the US – limited to several (primarily large cap) stocks.
In Australia a breach of short-selling provisions is generally a criminal offence. ASIC notes that it has no tolerance for breaches of these provisions, especially in the current environment.
ASIC voiced its concerns by recent increases in the number of new retail investors who may be unaware of their risk exposure.
There are now 1.25 million active online traders in Australia, of which 435,000 placed their first trade on a share market in the 2020 calendar year, according to research firm Investment Trends. Almost half (49%) of first-time investors surveyed were aged between 25 and 39, while 18% were under 25 years old.
Greg Yanco, Executive Director, Markets at ASIC, commented:
“The GameStop incident in the US, coupled with consistently low interest rates and the ongoing hunt for yield in today’s market, have inflated people’s appetite for risk.
Everyone is entitled to take risks. However, we advise first-time investors to focus on long-term goals and not make rash decisions based on a fear of missing out on market falls or gains. We also recommend learning about trading before you start or getting advice from someone you trust.”
ASIC also cautions first-time traders against relying on claims made in advertisements and on social media forums. Online scams, unlicensed advice, and misinformation about products and trading strategies are becoming more common, the regulator said.
Last week, ASIC warned of a steep increase in reports about financial scams in the first two months of 2021. The regulator is aware of greater numbers of scammers taking advantage of people throughout the COVID-19 pandemic. Reports of misconduct to ASIC over January/February 2021 are up by more than 200% compared to last year.