Razorback,Yes, I understand what you're saying. However, my...

Razorback,

Yes, I understand what you're saying. However, my point is that JP Morgan has a business (a large one, at that) whereby they go out and buy a whole load of shares in certain companies which are "representative" of a range of sectors, all around the world, and hold those shares for the explicit purpose of lending them out to their clients.

Their clients will then typically go off and sell them, thus exerting downward pressure on the share price, in the hope of being able to buy them back and return them at some later date.

At any given point in time, JPM might have someone lending stock and another returning it (ie. someone instituting a new short and someone covering). If JPM wants to maintain their "float" at the same level, it has to enter the market and purchase the difference. So, if they have 10m shares out on loan and someone has returned 9m, they have a 1m deficit. If they wanted to maintain their "float", they would enter the market and buy 1m, only.

Because they are broker, dealer and banker, they buy the stock on their own account (dealer), then they provide it to their hedge fund clients and charge: a fee to place the trade (broking); interest on the stock loaned (banking); and a fee to cover the trade (broking).

Under Australian law, a substantial holder only needs to notify when they have a net change of ownership which represents more than 1% of shares on issue. In ROC's case, that's about 3m shares. So, as long as JPM ensures it keeps its overall holding within 3m of its last declaration, we have no idea what has been bought or sold short by its clients. One of the reasons why JPM can charge big fees for their securities lending service is because they can allow their clients easy access to a range of shares around the world, however the another reason is because they can facilitate anonymous buying and selling. Who knows if one of their clients is presently short 15m or so ROC shares? Only JPM.

Sometimes, they go over the 1% change threshold, either accidentally or because they've decided to add or substract from their overall holding. No problem, just send in a very extensive notice generated by your computer, like they recently did for SBM here, for example. From that notice, you can see just how actively their computerised trading software maintains the "float" at a pretty consistent level.

I've seen a number of US investment banks pop up over the past few years with these kinds of extensive disclosure forms. I was bamboozled by them for a long time, however I now think I have a handle on what's going on.

Of course, I may be completely wrong. However, I believe that this is what's going on and I believe it's a reason to fear JPM appearing on your company's register as a substantial holder.