There's no margin for error AdvertisementEmail Print Normal font Large font AdvertisementStephanie Peatling, Miriam Steffens and Clancy Yeates November 20, 2008
MARGIN lending to company directors will be investigated by the Federal Government as it tries to beef up the integrity of the financial system.
The Minister for Superannuation and Corporate Law, Nick Sherry, yesterday announced he had asked the Corporations and Markets Advisory Committee to conduct a four-pronged inquiry into market practices.
As well as margin lending, the inquiry will look at trading by company directors in "blackout" periods, when corporate chiefs are not supposed to trade in their company's shares before the release of a result; the spreading of false rumours to influence share prices ("rumourtrage"); and the potential disclosure of market-sensitive information at closed analysts' briefings.
Meanwhile, shares in several companies regarded as vulnerable to short-selling plunged as the ban on shorting non-financial stocks was lifted yesterday.
The ASX 200 fell 0.7 per cent to a fresh four-year low of 3499.6, and has now lost half its value from last November's peak.
Senator Sherry said recent Australian market volatility reflected some of the market practices now under the spotlight.
"The impact of directors' margin lending and rumourtrage need to be understood and the laws changed if needed. This is about market integrity and investor confidence," he told the National Press Club.
The minister refused to specify instances where margin lending has led to a company's collapse but the announcement comes as the Federal Government scrambles to deal with the fallout from the placing into administration of ABC Learning Centres, which was partially linked to a series of margin loans taken out by founder Eddy Groves.
Amid the campaign to improve market practices, several consumer discretionary and media stocks - seen as a proxy for the sagging domestic economy - slumped by more than 10 per cent, in what appeared to be the return of short-selling.
ASIC banned the controversial practice in September, amid concerns that hedge funds were shorting stocks to drive down share prices in a way that compromised market transparency.
In the absence of major business announcements or local economic news, Crown lost 10 per cent to $5.20 and the Herald's publisher Fairfax Media lost 11.7 per cent, to $1.40. Fortescue Metals Group, long regarded as a shorting target, fell 15.8 per cent to $1.36.
Most financial stocks appeared immune from the fallout.
Investors who thought the ban unfairly discriminated against non-financial companies vented against the corporate watchdog, claiming ASIC's selective ban aggravated the selling of non-financial stocks.
"The Government is going from being a regulator to picking winners and losers," one fund manager said, pointing out that 12 of the 15 worst performing stocks on the ASX100 were unprotected from the short-selling ban, while 11 of the 15 top performers were protected. "It's a bit like Animal Farm … some stocks are more equal than others."
The head of Sydney sales trading at ABN Amro, Justin Gallagher, said that while he had not seen wholesale shorting of the market, the resilience of financial stocks suggested the practice was helping to drive down other sectors.
"I don't think it's as prominent as people might speculate, but there's no question that … that part of the market that has some
restriction on short selling is outperforming today."
