The Australian Securities and Investments Commission yesterday extended the ban on covered short-selling for non-financial stocks until November 19, but announced that its ban on shorting financial stocks would continue until January 27.

The Australian regulator first banned short selling for 30 days in September, following the example of the US, UK and several European countries, in an attempt to limit volatility from the global financial crisis.

But is the latest extension just stubbornness on the part of the regulator, unwilling to copy the Securities and Exchange Commission, which lifted the ban on short selling of financials earlier this month following the passage of the USD700bn bailout bill? The Australian arm of the Alternative Investment Management Association seems to think so.

Australian banks no longer need further government protection, says the association's chairman Kim Ivey, arguing that the ban is damaging market liquidity and denying investors the ability to protect their capital in falling markets. 'The situation has reached a stage where this extension of the short selling ban will have severe and immutable long-term effects,' he says.

However, ASIC chairman Tony D'Aloisio insists that financial markets remain fragile. 'We feel the reopening of covered short sales should be done in stages and in a measured way over an extended period and have regard to systemic issues, particularly for financial stocks,' he says.

The regulator says it will inform the market by November 13 as to whether it still plans to lift the ban on covered short selling of non-financial stocks six days later. The hedge fund industry will certainly hope they will lift the restrictions on financial stocks at the same time.