tim shorting, page-20

WuGin

I think, you are wrong by assuming you can exercise short selling based on TIMPB shares as presently exercisable (they are not yet issued and converted to TIM shares) and having an unconditional right to vest. At the end you are responsible for your actions (selling something, which is not owned by someone is called fraud)

Australia is not USA and has its own Corporation law

Naked short selling is banned in Australia

ASX has decided (and ASIC agrees) that from Monday 22 September 2008, all securities will be removed from the ASX Approved Product List for naked short sales, until such time as the Government’s foreshadowed legislation amendment in relation to short selling activity takes effect.

What is a naked short sale
The guide identifies that a naked short sale occurs unless the seller has ‘a presently exercisable and unconditional right to vest’. ASIC has also clarified through the guide that this means a legally binding commitment is required from another party such as a stock lender before the sale is entered into. ASIC will not accept an informal promise to locate stock before settlement day as sufficient for this purpose. Day traders, for example, will need stock to sell, before any sale.

Section 1020B of the Corporations Act prohibits a person from short selling in Australia: see RG 196.1–RG 196.3.
To avoid breaching this prohibition, a person selling products must, at the time of sale, have ‘a presently exercisable and unconditional right to vest’: see RG196.4–RG 196.13.


The short selling prohibition
RG 196.1 In Australia, a person must only sell ‘section 1020B products’ to a buyer if, at the time of sale:
(a) the person has, or
(b) the person or their representative believes on reasonable grounds that the person has, a presently exercisable and unconditional right to vest the products in the buyer: s1020B(2).

RG 196.2 By ‘section 1020B products’, the Corporations Act means securities, managed investment products, financial products under s764A(1)(i), and other kinds of financial products ‘prescribed by the regulations’.

Note: For the definition of ‘section 1020B products’, see s1020B(1) of the Corporations Act. For financial products ‘prescribed by the regulations’ for the purposes of s1020B(2), see reg 7.9.79, 7.9.80A and 7.9.80B of the Corporations Regulations.

RG 196.3 A sale of these products other than as described in RG 196.1 would be a short sale under s1020B (thus the ‘short selling prohibition’).

What is ‘at the time of sale’?
RG 196.4 ‘At the time of sale’ includes when an offer for sale is placed.
RG 196.5 A person is taken to sell ‘section 1020B products’ if they purport to, offer to, hold themselves out as entitled to, or instruct the holder of an Australian financial services licence (a financial services licensee) to, sell those products: s1020B(7).

RG 196.6 ‘At the time of sale’, for the purposes of s1020B(2), is at the point of sale and not at the close of the trading day. A person who has a net no sale position at the close of trading would still need to have a ‘presently exercisable and unconditional right to vest’ at the point in time when the sale is made (in addition to the times referred to at s1020B(7)).


What is a ‘presently exercisable and unconditional right to vest?

RG 196.7 To have a ‘presently exercisable and unconditional right to vest’, a person must, at the time of the sale, have power to direct a transfer of the product.
The transfer must also provide the person with the absolute ability to give the buyer title to the product.

RG 196.8 A person who holds legal title to the product at the time of sale would have a
‘presently exercisable and unconditional right to vest’ for the purposes of s1020B.

RG 196.9 We understand it is common market practice to rely on securities obtained under a securities lending arrangement to satisfy the need to have a ‘presently exercisable and unconditional right to vest’ the securities in the buyer.

RG 196.10 In Australia, securities lending arrangements typically involve the transfer of securities from the owner (lender) to another party (the borrower), with the borrower obliged to return the securities (or its equivalent) either on demand or at the end of the loan term. The borrower usually gives the lender collateral as security for the loan.

RG 196.11 We consider that ‘a presently exercisable and unconditional right to vest’ would involve the lender giving the borrower (or a third party as the borrower may direct or procure), at the time of sale, a firm commitment to deliver the products. By ‘firm commitment’, we mean a legally binding commitment.

RG 196.12 The best evidence of that firm commitment would be written confirmation for delivery into settlement. In contrast, an agreement made at the time of the sale for a lender to provide the borrower with securities on a ‘best endeavours basis’ cannot provide a ‘presently exercisable and unconditional right to vest’ the financial product.

RG 196.13 We recognise that arrangements between lenders and borrowers will vary.
Whether the arrangements are sufficient to reflect ‘a presently exercisable and unconditional right to vest’ will depend on the particular circumstances of these arrangements.


NJ