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Regulators consider extending ban on short se -

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Reporter: Sue Lannin

ELEANOR HALL: Hedge fund operators are among those accused of causing the global financial
meltdown.

One of the practices they engage in is short selling which can drive down the market.

Last year, Australian regulators tightened the short selling laws and imposed a temporary ban on
the short selling of financial stocks.

That ban is set to end on Friday but regulators are considering extending it partly because of
concerns about the share prices of Australian banks.

Finance reporter, Sue Lannin, has more.

SUE LANNIN: Hedge funds are considered by some to be on the wild west of the investment frontier.

They're accused of targeting vulnerable companies and driving down the share price by selling
shares they don't own in the hope of buying them back later at a cheaper price.

Last September Australia toughened up the law and restricted short selling.

It imposed a temporary ban and financial stocks are still not allowed to be short sold.

The head of corporate law at Melbourne University, Ian Ramsay, says the legal changes were a good
thing but the ban should now be lifted.

IAN RAMSAY: After all, there isn't any real evidence that the existing ban has effectively worked.
We've had a declining stock market around the world and there isn't real evidence before ASIC or
other regulators around the world, short selling where it is permitted, has destabilised the
markets.

SUE LANNIN: The big banks pushed for the ban and the Australian Bankers Association supports its
extension as financial stocks continue to plunge.

Macquarie Group, which reportedly has been targeted, refused to comment.

The corporate regulator, the Australian Securities and Investments Commission says it will make a
decision this week on whether the ban should be extended.

Hedge fund manager Tom Elliott from MM&E Capital says the ban on the short selling of financial
stocks has had no effect.

TOM ELLIOTT: It is very difficult to short sell banks at the moment. There is a way to do it and it
is probably going on but no, most of the selling going on in banks is just long share holders who
are getting out because they are worried about the medium-term outlook for financial services and
it is not very good.

SUE LANNIN: Do you think the ban on the short selling of financial stocks should be lifted?

TOM ELLIOTT: Look, I do and I would be accused of promoting self-interest because I manage a hedge
fund and we do short sell stocks as part of our investment activities. Look the rest of the world
hasn't been short selling. They have got rid of their bans. Australia is relatively unique for
having kept it on financial stocks.

Short selling is not causing share prices to fall. Panic on world markets causes share prices to
fall. At its very worst all short selling does is simply cause share prices to get to where they
have to go a bit more quickly.

SUE LANNIN: A media report today claims that foreign hedge funds are ganging up to short sell
Australian banks if the ban is lifted.

But Kim Ivey from the Alternative Investment Management Association, which represents hedge funds,
says it is just another rumour.

KIM IVEY: I think it is another example of emotive comment and rumours hitting, I guess, the press,
circulated by the press during a time of uncertainty. And I think that the sooner that we get to a
level playing field both in a regulatory sense and certainly in a market sense, then we won't have
these sorts of conspiracy theories being aired.

SUN LANNIN: But Kim Ivey, are foreign hedge funds targeting Australian banks?

KIM IVEY: Why would, I don't understand why they would. There are many, many banks obviously around
the world. There are many jurisdictions; there are many exchanges that do not have shorting bans in
place. If you look at the profitability of the Australian banks, they are in far better shape.

So I don't understand the logic of why people are saying that overseas groups are going to be
targeting Australian banks when they are in such good shape.

ELEANOR HALL: That is Kim Ivey, the head of the Alternative Investment Management Association,
ending that report by Sue Lannin.