Appendix II: New Zealand Stock Exchange Members Regulations
It is a condition of membership that members and proposing members agree in writing to comply with, and be bound by, the Rules, the Regulations and the Code.
The regulations on short selling are summarised as follows:
- Members may short sell "approved securities" only in accordance with the regulations. Approved securities are securities designated by the Board of the exchange as having sufficient liquidity in the market.
- Short selling is not permitted if the result of the sale would be that more than 10% of the total number of issued securities of that issuer would be the subject of short sale contracts.
- No member will accept from a client a selling instruction which would be a short sale where the member has reasonable cause to believe that it would involve a short sale resulting in more than 10% of the total number of issued securities of that issuer being the subject of short sale contracts.
- All net short positions of $50,000 or greater in value in each Approved Security must be reported to the Exchange by the selling broker before 9.00 a.m. each business day. Where the broker is selling on behalf of a client any short sale must be designated as such on the contract note given to the selling client.
- No member may make a short sale on behalf of a client without having first obtained from that client an initial margin of cover (provided either in cash or in listed securities or in a combination of both) of at least 20% of the contract price of the short sale.
- In the event that the issuer of any listed security proposed or provided as cover is suspended, delisted, placed in receivership or liquidation or has its operations in any way restricted, either by the Exchange or by legal process, the member will require the client to provide further margin of cover to the extent that the original margin of cover has been reduced by the deduction of the suspended security.
- Where there is a rise of more than 10% in the market price of a security which has been short sold and is not yet delivered, the selling member will require the selling client to provide additional margin of cover equal to at least 20% of the amount of the increase.
- Where there is a fall in the market price of any security provided as margin cover, the selling member must require the selling client to provide additional margin of cover to make up the shortfall.
- Notwithstanding any other provision in the regulations, a member may at any time require a short selling client to pay or provide security for 100% of the current cost of closing out a short sale.
- If a short selling client fails to provide any margin of cover, by the beginning of the next trading session after the demand is made, the member acting for that client may proceed to close out the short sale at the client's risk and expense. If a profit results, the member shall account to the client accordingly.
- No short sale may be made during a trading session or before 5.00pm on any trading day at a price lower than the last reported sale of the security in question. Short sales made after 5.00pm on any trading day may be at a price mutually agreeable between buyer and seller.
- No short sale of an approved security may be made where a Notice of Restricted Transfer has been received by the Exchange unless the transfer of securities that are the subject of the Restricted Transfer has been completed, or the Notice of Restricted Transfer has been withdrawn.
- The Board has complete discretion either to designate a particular security as an Approved Security or to withdraw that designation either temporarily or permanently.
- Existing short sale contracts in any security which loses its designation as an approved security will be allowed to stand but once the Exchange has announced the withdrawal of such designation no member may make any further short sales in that security until the designation is restored.
- The Board has an absolute discretion to prohibit or otherwise limit short selling in all or any of the approved securities.
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