If shortselling is to continue to be allowed there are a number...

If shortselling is to continue to be allowed there are a number of things that theGovernment/ASIC could do to level the playing field.

A month agoI sent a long letter to the Treasure Josh Frydenberg outlining what I believeare appropriate steps to protect the 5.45 million retail investors frompredatory short selling. The following are a few paragraphs from that letterthat relate to the loaning of stock by brokers. No response yet. Not holding mybreath.

The following is the extract:

…In my view the current “rules” allowing financial organisations andindividuals to borrow stock held by brokers on behalf of retail investors mustbe banned. It isunconscionable to lend/borrow/sell something that they don’t even own at theexpense of the owner.

2 If for some reason the “vestedinterests” win the day and the lending of stock held by the brokers on behalfof retail investors is permitted to continue then a specific clause thatrequires a specific Yes/No answer should be inserted into broker agreements along the lines of:

“Do you agree thatwe may loan your shares to a third party who may wish to short-sell thoseshares which may in turn result in the value of your shareholding significantlydecreasing?

Yes/ No”

At present, aclause permitting the lending of stock to a third-party will be buried in theagreement which can be 35+ pages in length. Mum and Dad retail investors wouldgenerally be unaware of its existence or its implications.

3. The brokerloaning the retail investors stock should rebate all or most (say 75%) of thefees earned to the retail investor. It is immoral for someone to loan outsomeone else’s property and earn money from that loan- particularly withouttheir knowledge.

4. At present borrowers of shares are required toreport the number of shares borrowed and shorted. ASIC and ASX publish lists ofthese shares on a regular basis. Lenders of shares should be required to reportthe number of shares they have loaned (but not the recipient).

The present lack of protection ofindividual retail investors from professional short-sellers cannot be justifiedand should not be tolerated.


As I said, I'm not holding my breath (excuse the formatting!)