I don't think this is the end of the matter for ANZ. From what I...

I don't think this is the end of the matter for ANZ. From what I read in this mornings papers the judgement merely clarifies that the borrower of securities under and ASLA securities lending agreement gets absolute unencumbered title to borrowed shares.

Those that have dealt with securities lending transactions have always taken this to be a founding principle on which a security lending depends. Most borrowers of securities want to be able to sell the borrowed securities and in their sale contract in day must be able to pass absolute title to the purchaser. It follows that a securities lending transaction is only useful if it provides absolute title to the borrower.

As the absolute owner of unencumbered shares, ANZ had more than a security interest in those shares and therefore was not entitled to the exemption from substantial shareholding reporting contained in the Corporations Act (section 609).

It follows that as the absolute owner ANZ had an obligation to inform the market of each substantial shareholding. Had the ANZ complied with its statutory obligations the market would have been informed and this whole mess would have been obvious long before opus prime got into trouble.

Equally it follows that directors who have lent their shares and have not informed the market of the reduction in their holding are misinforming the market.

This must be a huge embarrassment for ASIC and the ASX because many of these facts about securities lending generally would have been known to it but were not thought through sufficiently to identify the implication of securities lending on substantial holdings. I suspect there is a whole lot of correspondence dealing with securities lending which has not raised changes in substantial shareholding as a relevant consideration. Therefore it will be very awkward to revisit those issues and say, "By the way, we forgot to mention relevant interests and substantial shareholdings."

I am surprised the ASX in its circular to companies about margin lending, did not also ask directors to confirm whether any shares, which the director has informed the ASX he or she owns, have been lent under a securities lending transaction. Of course if they had then the directors disclosed shareholding should be reduced by the amount of shares lent.

I think this still has a long way to go.