The market’s response was both overwhelming and un-ambivalent. Westpac soared 7.4 per cent, Commonwealth Bank (the most heavily shorted bank stock) bounced 4.9 per cent, ANZ moved up 6.1 per cent and National Australia Bank (the least shorted of the banks) was 5.2 per cent higher. Indeed the major bounce in the bank stocks is magnified by short sellers scrambling to buy the shares and cover their short positions. Shorting the banks on the back of the potential for earnings-damaging recommendations from Hayne had clear risks. Those that read Hayne’s interim report would know that despite naming, shaming, accusations of greed and the uncovering of atrocious behaviour, the commissioner suggested that major regulatory change was not necessary. Rather, he made it clear that the laws were already in place and the regulators just needed to enforce and prosecute.

Loading His final report said more of the same. While this means there could be years of prosecution ahead for banks and some of their executives as well as numerous fines, the fundamental structure of the system is not under threat from the royal commission. There was a uniformity of views coming from bank analysts that for the big four, the Hayne report was a major reprieve. And as for those investors that had taken short positions in the the beleaguered wealth managers, AMP and IOOF, the pain could be even greater.

The shorts were betting that Hayne would recommend structural separation and torpedo the vertically integrated financial services model. He didn’t and decided instead to push for a far less radical approach recommending, for example, all ongoing fee arrangements must be renewed once a year by the client, financial advisers must disclose their lack of independence and grandfathered commissions should be "repealed as soon as is reasonably practicable". The share price response was even more marked which in part reflects the fact they had fallen further over the past six months. IOOF was up more than 13 per cent by lunch while the AMP rebounded more than 10 per cent. While the pain felt by the short squeeze was palpable, there was a happy buzz in the background from many small retail investors that had (net) increased their holdings in bank stocks, according to a report last week by Macquarie Capital. They had braved the negative publicity and bought bank stocks as their share prices weakened having no doubt been enticed by yields of around 7 per cent.