Australia's Assistant Treasurer Chris Bowen spoke to a large audience at an IFSA lunch today. The key to his speech was a desire by the government to remove any impediments to Australia becoming a financial services hub - to create a level playing field. This is a very encouraging development for the Australian financial services industry.
Financial services represents just 3% of Australia's exports. Twenty years from now he sees no reason why financial services cannot generate more export income than the resources sector. But impediments will need to be removed and the Government to step out of the way.
In particular, he foreshadowed a review of Div6C of the Tax Act by The Board of Taxation chaired by Dick Warburton. The review will look for revenue neutral changes and is required to be complete by mid-2009. In the meantime, the Government will consider interim changes. A consultation paper will be released and comments sought over the next 3 weeks. Australia's IFSA will be making a submission.
No mention was made about any changes to superannuation. This will await the budget on 9 May 2008.
Friday, February 22, 2008
ASIC Concerned About Collusion
The Australian Financial Review reported today that ASIC is concerned that hedge funds might be colluding to drive down share prices to profit from short selling. The concern appears to be around knowledge of potential margin calls.
In particular, there appears to be a concern that share price falls can be exaggerated if it results in margin calls that in turn results in further sales of stock. How much stock is called will depend on the fall in price and the extent of cover held by investors with investments on a margin basis. While share prices are evident to the market, the latter is not. There appears room to increase transparency in this area. I am not aware of any markets in the world where the extent of margin lending against a company is published. However, a good start would be to require that the margin loans and changes of margin loans of related parties in the company be made public along with declaration of holding.
ASIC Chairman Tony D'Aloisio acknowledged the important role that hedge funds play in providing liquidity to markets, however the author of the article Matthew Drummond shows his distrust of short selling by using the term "punting" when explaining the use of short selling by hedge funds and refers to this as "the ability of hedge funds to manipulate the market in this way".
By implication, investing is good and short selling is bad. This is nonsense of course. The real strength of hedge funds is that they are able to invest in companies they consider have good prospects and sell companies they believe have poor prospects thus helping to drive share prices towards fair value.
Yes collusion, if it occurs, is bad and transparency of information is good. But lets not colour short selling with an "evil" tag. That's a mistake.
In particular, there appears to be a concern that share price falls can be exaggerated if it results in margin calls that in turn results in further sales of stock. How much stock is called will depend on the fall in price and the extent of cover held by investors with investments on a margin basis. While share prices are evident to the market, the latter is not. There appears room to increase transparency in this area. I am not aware of any markets in the world where the extent of margin lending against a company is published. However, a good start would be to require that the margin loans and changes of margin loans of related parties in the company be made public along with declaration of holding.
ASIC Chairman Tony D'Aloisio acknowledged the important role that hedge funds play in providing liquidity to markets, however the author of the article Matthew Drummond shows his distrust of short selling by using the term "punting" when explaining the use of short selling by hedge funds and refers to this as "the ability of hedge funds to manipulate the market in this way".
By implication, investing is good and short selling is bad. This is nonsense of course. The real strength of hedge funds is that they are able to invest in companies they consider have good prospects and sell companies they believe have poor prospects thus helping to drive share prices towards fair value.
Yes collusion, if it occurs, is bad and transparency of information is good. But lets not colour short selling with an "evil" tag. That's a mistake.
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