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CONTRACTS-for-difference markets have been thrown into confusion by the Australian market regulator's decision to ban short selling for an initial 30 day period starting Monday the 22nd of September 2008. This followed suit with the US regulator who a week earlier placed a temporary ban on the shorting of financial stocks.
Several CFD providers acted quickly yesterday, stopping clients from taking short positions in Australian shares, while still permitting such positions on commodities, currencies and indices.
The complex products are aimed at retail investors, who agree to exchange the difference in the price of a security between the time a contract is opened and the time it is closed.
The Australian Securities Exchange, which also runs a CFD platform, has instructed brokers to seek guidance from the Australian Securities and Investments Commission.
An ASX spokesman, Matthew Gibbs, said it was unclear whether clients could take short positions in ASX-traded CFDs. There are about 50 equity CFDs and 15 CFDs on leading world indices, currencies and gold.
Yesterday just over 60,000 ASX CFD contracts traded, about one-third of the daily average.
On Sunday the commission banned short selling for all Australian shares, with a few exceptions, preventing investors from profiting when a stock's price falls.
A commission spokeswoman said the prohibition did not apply to CFDs, because they were derivatives.
But the managing director of First Prudential Markets, Matthew Murphie, said without the ability to take short positions on the market as a hedge, most CFD providers had little choice but to stop offering "short" CFDs.
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