ASIC bans fund manager Gregory Tolpigin for naked short selling
ASIC has renewed its focus on naked short selling and will continue to identify non-compliance and take enforcement action where necessary.
The Australian Securities and Investments Commission has banned Gregory Tolpigin, former Gleneagle Securities fund manager and authorized representative, from providing financial services for three years.
Gregory Tolpigin was found to have engaged in naked short selling, an activity that is prohibited under ASIC’s short selling regime, an essential policy for the maintenance of financial market integrity, according to the regulator, which argues that the prohibition reduces the risk of settlement failure, distortions to the operation of financial markets and abusive short selling that can artificially depress prices. ASIC also claims the ban on naked short selling improves the accuracy of information available to the market.
ASIC argues Gregory Tolpigin’s naked short selling risked settlement failure
Naked short selling occurs when a person sells certain financial products such as shares that are not held and cannot be transferred to a buyer at the time the person places the sell orders.
According to ASIC, Gregory Tolpigin engaged in the naked short selling of shares on 150 occasions totaling over $7 million from 19 January to 27 August 2021. He sold shares on the ASX through accounts held with Gleneagle Securities and associated entities. Tolpigin did not own or borrow the shares at the time he placed the orders to sell them.
The financial watchdog argues that Gregory Tolpigin’s sales risked settlement failure in the event that he was unable to buy the shares back prior to settlement, for example, if the shares had been suspended from trading. ASIC also claims the naked short selling distorted the accuracy of the ASX gross short sales report, published daily. The accuracy of this information contributes to the integrity of Australia’s financial markets.
Gregory Tolpigin is now banned from providing financial services and from controlling a financial services business or performing any function involved in carrying on a financial services business as an officer.
Naked short selling vs Covered short selling
The naked short-selling prohibition forbids a person from selling certain financial products such as shares that are not held and cannot be transferred to the buyer. The seller must hold the shares and be able to transfer them at the time of placing an order to sell, when the sell order matches with a buy order causing a trade, and when settlement occurs two business days later.
A person may ‘borrow’ shares before selling them. That is, the person first acquires the shares with the right to sell them but has an obligation to return the equivalent number of shares back to the ‘lender’ at a future time. This is known as ‘covered’ short selling. It does not contravene the provision but the seller has separate obligations to disclose covered short sales to the market through short sale transaction reporting and separate short position reporting.
ASIC recognizes that covered short selling, when carried out within the legislative and regulative parameters, is a legitimate mechanism for price discovery and liquidity. ASIC does not seek to limit or restrict short selling that is compliant with the legal and regulatory regime.
