ASIC Bans Short Selling Of Australian Shares

After another week of turmoil on the Australian stock market, the Australian Securities and Investment Commission has announced a temporary ban on 'naked' short selling. This action has been taken in an effort to restore confidence to the market - particularly the shares of those companies operating in the financial sector.

Rumour has it that hedge fund short selling was behind the plunge in the Macquarie Group (MQG) share price during the week. The stock hit a low of $25.98 on Thursday before finishing up the week at $35.90. It's believed short sellers targeted the stock in the wake of more bad news from Wall Street amid the Lehman Brothers collapse and the sale of Merrill Lynch.

Short selling is the practice of selling securities you don't own in the hope of buying them back at lower prices and pocketing the difference. It can be quite lucrative when the share price of a company drops a long way very quickly. The problem is that short selling exerts further downward pressure on the stock price and naturally leads one the ask questions about stock market manipulation.

I have read that Westpac and ANZ Bank have also been subject to pressure from short selling and this is where it can become dangerous. A plummeting share price can cause doubts in the minds of bank customers - not just investors. In the worst case scenario a run on funds could ensue. Deposit holders assuming there is something fundamentally wrong with the bank withdraw their funds en masse leaving the institution with a massive liquidity problem.

Only naked short selling has been disallowed. Covered short selling is still allowed (this is where you need to 'borrow' the shares before you sell it).

ABC Learning Shares Still Suspended

The ABC Learning (ABS) saga continues. Regular readers of Australian Stock Market Investing will know I've developed a fascination with this company as evidenced by my posts on their share price crash, the continued stock price slide, the share price recovery and finally the IMF Class Action against ABC Learning. It feels like I've been watching a car crash in slow motion. The shenanigans that have gone on here are worthy of the best (or worst) daytime soap operas.

ABC last traded at 54 cents after an alarming share price drop over the past year. The share price graph below does not paint a pretty picture - especially if you're an ABS shareholder.

ABC Learning Share Price Chart

Next I'll bring you up to date with the latest developments.

ABC requested a trading halt on 21 August, which the ASX granted.

On 25 August, ABS shares were suspended from official quotation at the company's request so the company could:

"finalise its full year results and prior period adjustments arising out of a re-assessment of accounting treatments"

The voluntary suspension was meant to last for 4 days (it's now mid-September).

Then on 29 August, ABC Learning announced it was still not in a position to release its annual results and therefore would not be able to comply with ASX Listing Rule 4.3. Listing Rule 4.3 says that a company must provide its Annual Results within 2 months of the close of the accounting period, subject to a number of exceptions. For those purists out there who want this stuff straight from the horses mouth, you can read more about Listing Rule 4.3.

The most recent announcement on 9 September indicates results should be available by the end of September 2008. They also announced the appointment of a new Chief Financial Officer (CFO) - Peter Trimble. Is that a hospital pass or what?

While there's been no official word, apparently sources have told the Sydney Morning Herald that the release of the annual accounts have been delayed over questions of the company's solvency. Ernst & Young have taken over the audit role from Pritcher Partners and the rumor is that KPMG has been called in as arbiter over a dispute about the correct accounting treatment of some items.

I'm sure the last thing Eddie Groves and the ABC Learning board want is for Ernst & Young to issue a qualified audit opinion, especially if the qualification relates the company's status as a going concern.

Having said all of that, provided ABC doesn't become the Australian stock market's latest corporate fatality, it may be an interesting situation. It operates what should be a profitable business. I believe there is a board restructure taking place and if they were able to reduce their debt to more realistic levels and concentrate on the Australian business, who knows - maybe something beautiful can grow...

Australian Stock Market Hits 2 Year Low

Shares on the Australian Stock Market hit their lowest level in 2 years today. The All Ordinaries index closed just under 4,800 after falling about 1.5%. And this was after a fall of over 1.6% yesterday. You need to go back to early 2006 to see the All Ords at a level below this. The following graph shows the performance of the Australian Stock Market over the past 2 years.

Performance of Australian Shares

The sell-off was triggered by news of the collapse of Lehman Brothers over the weekend and the sale of Merril Lynch. Lehman Brothers, a large United States investment bank, filed for bankruptcy protection under the US Bankruptcy Code - from what I've read, it's the largest filing in US financial history.

As you would expect, Aussie financial stocks were down significantly on news out of the US. All of the major Australian banks withe the exception of Westpac were down today. Investment bank Macquarie Group (MQG) was down $4.55 yesterday and another $2.66 today to finish the days trading at $36.80. And poor old Babcock & Brown (BNB) was down a lazy 33.5% today to a closing share price of $1.05 - a long way off its 52 week high of $31.08.

While the recent financial turmoil has claimed it's share of victims on the Australian stock market, I wonder whether the worst is over yet. Investors should be taking a good hard look at their portfolios, particularly shares in companies with excessive debt. And if you're taking advantage the bargains on offer at the moment, discretion as advised.