ASIC said it will lift the current ban on covered short selling of financial stocks from the start of trading today.
However, the regulator said it won't hesitate to reimpose the ban immediately and without consultation if it considers market conditions warrant such action.
Covered short selling of securities was temporarily banned on 21 September 2008 due to extreme market volatility.
ASIC lifted the ban on covered short selling of non-financial shares on 19 November and told the market on 5 March that the ban on short selling of financial securities would continue until 31 May. ASIC said this position would be kept under review.
"In reaching this view, however, ASIC notes that the global financial crisis and global recession continues to place pressure on Australia's markets," ASIC said.
"ASIC will not hesitate to reimpose the ban immediately and without consultation if it considers market conditions warrant such action.
"ASIC will, in its monitoring of the market along with ASX, pay particular attention to short selling activity by participants (including activity by hedge funds and similar institutions) which could potentially harm Australia's financial system."
