The Australian Securities and Investments Commission's (ASIC) surprise move to lift its temporary ban on covered short selling of financial stocks earlier than expected does not signal that it won't intervene in the equity markets again, according to a leading lawyer.

Allens Arthur Robinson (Allens) Equity Capital Markets Partner Warwick Painter said the removal of the temporary ban marks the end of an extraordinary period of regulatory uncertainty for equity market participants, but warns that we may not have seen the last of ASIC moving pre-emptively to shut down particular types of trading activity, if it believes that circumstances warrant ASIC's intervention.

'The Corporations Amendment (Short Selling) Act confirms ASIC's power to issue Class Orders that effectively modify the Corporations Act as it applies to market activity, without notice or consultation,' Mr Painter said.

'This aligns with international thinking on regulation. For example, the US SEC was recently reported to be considering a 'circuit breaker' approach to regulation where short selling in particular stocks could be banned or restricted if there were a severe price decline in a stock on any particular day.

'ASIC has indicated it will continue to watch trading activity in the equity markets closely, and will also monitor the use of options and derivatives as a proxy for unacceptable trading activity.

'This is not just about actual short sales, but it's about regulating any activity that has the same or substantially similar market effect as a short sale of financial products'.

ASIC had until Friday to announce whether the temporary ban would be lifted or would continue, but did so early to capitalise on positive share market sentiment.

'As a regulator, you don't want to be lifting the short selling ban at a time when bad economic news is already driving markets down and putting financial stocks under pressure. So lifting the ban without notice early on a Monday morning, with not too much bad news on the horizon, is probably optimal timing from a regulator's viewpoint.'

Warwick Painter was interviewed on Boardroom Radio on this topic.