ASIC has renewed its focus on naked short selling and will continue to identify breaches and take enforcement action where necessary.

The Australian Securities and Investments Commission has banned Gregory Tolpigin, a former fund manager and authorised representative of Gleneagle Securities, from providing financial services for three years.

Gregory Tolpigin was found to have engaged in naked short selling, an activity prohibited under ASIC's short selling regime, which is a fundamental policy to maintain the integrity of financial markets, according to the regulator, which argues that the ban reduces the risk of settlement failures, distortions in the functioning of financial markets and abusive short selling that can artificially drive down prices. ASIC also claims that the naked short selling ban has improved the accuracy of information available in the market.

ASIC considers Gregory Tolpigin's naked short selling to be at risk of settlement failure

Naked short selling occurs when someone sells certain financial products, such as shares that are not held at the time the person places the sell order and cannot be transferred to the buyer.

According to ASIC, from January 19 to August 27, 2021, Gregory Tolpigin engaged in 150 naked short selling of shares totalling more than $7 million. He sold shares on the Australian Securities Exchange through accounts held at Gleneagle Securities and related entities. Tolpighen did not own or borrow the shares at the time of the sell order.

Financial regulators have argued that Gregory Tolpigin's sales could cause the settlement to fail if he is unable to repurchase shares before settlement, for example if the stock has been suspended from trading. ASIC also claims that naked short selling distorts the accuracy of the ASX Total short selling report, which is published daily. The accuracy of this information contributes to the integrity of Australia's financial markets.

Gregory Tolpigin is now prohibited from providing financial services and controlling a financial services business or performing any function involving carrying out a financial services business as an officer.

Naked short and covered short

Naked short selling bans prohibit anyone from selling certain financial products, such as shares that are not owned and cannot be transferred to the buyer. The seller must hold the shares and be able to transfer the shares when the sell order is placed, when the sell order matches the buy order resulting in a transaction, and at settlement two business days later.

One can "borrow" a stock before selling it. That is, the person first receives shares with the right to sell the shares, but is obligated to return an equal amount of shares to the "lender" at some future time. This is called "covered" short selling. This is not against the rules, but sellers have a separate obligation to disclose covered short selling to the market through a short sale report and a separate short position report.

ASIC recognises that covered short selling within legislative and regulatory parameters is a legitimate mechanism for price discovery and liquidity. ASIC does not seek to restrict or restrict short selling in accordance with the legal and regulatory regime.