Financial Services Minister Chris Bowen has released Short Selling Disclosure Regulations attached to the Corporations Amendment (Short Selling) Act 2008. The Regulations require that share investors report covered short sale transactions to brokers as is currently the case, and in addition, effective 1 April 2010, report positional short positions to ASIC which will be aggregated and reported with a 4 day lag.
The acknowledgement of the value of positional reporting is commendable. However, retaining the transactional reporting requirement is difficult to understand given the cost involved and in view of the fact that it is partial and misleading (see earlier post).
The announcement is silent on how the positional information is to be conveyed, whether it is direct or via prime brokers/custodians as discussed in the 6 March Treasury Consultation Paper. How will foreign investors be enforced to provide data and how will ASIC achieve the aggregation task?
All this effort and expense to justify a mechanism designed to report positions that according to the Australian Treasury represent an upper limit of 4% of total market capitalisation. Once a record of short positions is established and proper analysis is conducted will the cost of this dual reporting approach be seen to be justified?
Friday, October 02, 2009
Thursday, October 01, 2009
The 7 Habits of Highly Suspicious Hedge Funds
In a post-Madoff world this blog post from Rick Bookstabber titled "The 7 Habits of Highly Suspicious Hedge Funds" makes good reading.
It confirms my thinking that hedge funds will fall into two broad groups going forward. First, those that operate under a veil of secrecy and use leverage and sometimes unlisted securities. And then there are those that rely on an open and transparent process with listed securities and no leverage.
The key safety factor for investors is the separation of custody and administration from investment management. Not just Chinese wall separation, but real separation. In Australia, the role of independent Responsible Entity provides that separation for retail investors and other investors participating in an ASIC registered Product Disclosure Statement. For institutional investors using managed accounts, the role of custody and investment management is clearly separated.
For investment managers that are also Responsible Entity and perform custody and administration functions, the burden of ensuring separation of roles is necessarily greater.
Funds that have open and transparent processes, that don't require leverage to produce returns and are prepared to publish holdings (even with a lag) will be more likely to gain the confidence of investors.
It confirms my thinking that hedge funds will fall into two broad groups going forward. First, those that operate under a veil of secrecy and use leverage and sometimes unlisted securities. And then there are those that rely on an open and transparent process with listed securities and no leverage.
The key safety factor for investors is the separation of custody and administration from investment management. Not just Chinese wall separation, but real separation. In Australia, the role of independent Responsible Entity provides that separation for retail investors and other investors participating in an ASIC registered Product Disclosure Statement. For institutional investors using managed accounts, the role of custody and investment management is clearly separated.
For investment managers that are also Responsible Entity and perform custody and administration functions, the burden of ensuring separation of roles is necessarily greater.
Funds that have open and transparent processes, that don't require leverage to produce returns and are prepared to publish holdings (even with a lag) will be more likely to gain the confidence of investors.
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