Shares surge despite uncertainty

The bounce lifted the spirits of some investors, but concerns grew that the ban had delivered an artificial boost that could accentuate future volatility.

Trading yesterday was delayed by an hour as the Australian Securities Exchange (ASX) sought to clarify aspects of the crackdown and the corporate regulator rushed out more details of its unprecedented ban on shorting - a way of making money from falling share prices.

Investors were allowed to keep their existing short positions - or bets that prices would fall - in place. But they were not allowed to initiate new short trades, which involve selling borrowed shares, hoping to buy them back at a lower price.

Combined with a $US700 billion plan by the US Treasury Secretary, Henry Paulson, to rescue American financial firms by buying soured mortgage debts and another big surge on Wall Street on Friday night, the moves saw shares immediately bounce.

The ASX 200 jumped 216.4 points, or 4.5 per cent, to 5020.5 and the All Ordinaries leapt 209.4 points, or 4.3 per cent, to 5050.1.

But it was far from a joyous day on the market. Short selling is widely used, and not just by hedge funds whose $2 trillion global industry came under immediate threat.

Stockbrokers can use short selling as a way of managing their trading book. And some superannuation funds employ investment managers that run "long/short" models.

"We are all fairly staggered really as to why ASIC would do this without too much consultation with participants on the short side," Damien Hatfield of hedge fund advisors Hatfield Liptak, said. "All this furore around shorting . is getting a little out of control."

Among companies that fell heavily in recent weeks, Babcock & Brown shares doubled in early trade, but later fell back to a 55 per cent gain. Macquarie Group surged more than 20 per cent but ped to a 5.3 per cent gain, following Friday's 37.8 per cent rebound.

The Treasurer, Wayne Swan, said short selling had a role to play, but it was appropriate to curtail its use at a time of heightened market volatility. "Some of these practices are, frankly, big investors manipulating the current circumstances to make money out of other people's misfortune," he said.

Industry groups flooded the Australian Securities and Investments Commission with requests for information and guidance about how the ban would work.

The Securities and Derivatives Industry Association and the Australian Financial Markets Association called on the regulator for detail about whether derivatives - such as call or put options - could be used to short sell as a way of managing risk.

The chief executive of the Australian Council of Superannuation Investors, Ann Byrne, said in a statement that a number of "member superannuation funds have mandates that incorporate covered short selling".

ASIC said on Sunday its hand was forced because US and UK regulators had imposed bans. If Australia had continued to allow the practice, an influx of funds into the country seeking short-selling opportunities would have created market mayhem.

But critics were unsure whether this would have happened, with short-sellers already in retreat.

Rescue plans - Page 18