OZschwitz: Incompetent ASIC knew it all but did nothing

By the middle of last year the Australian Securities and Investments Commission was on notice of serious issues that would become a factor in market ructions that have cost investors more than $16 billion this year.

In fact it was more than on notice. It knew about fund manager disquiet about poor disclosure surrounding stock lending that was occurring in last year's takeover-fuelled market.

It knew about the fundamental problem of short selling occurring without any disclosure to the market.

And it knew - or should have known - about the fundamentally risky business model pioneered by Tricom.

As the ASX 200 has plummeted - it is down over 17 per cent from the beginning of the financial year and almost 25 per cent from its peak in early November, representing $400 billion in investor wealth - the market has been in thrall to forces that have proved catastrophic for some shareholders.

Starting with RAMS last July, a series of highly geared companies have fallen over or stumbled in the past 12 months as the market adjusts to the effects of a credit crisis stemming from the US mortgage market.

Undisclosed short selling has been blamed in part for the downfall of companies including Centro, Allco, MFS (now known as Octaviar), ABC Learning and, most recently, Babcock & Brown and its satellites.

ASIC has calculated total losses from companies badly affected by the market disruption as $16.6 billion, before Babcock & Brown's fall from grace. This is greater than the $16.5 billion in losses that occurred when companies like Adsteam, Bond Corp, Qintex and Hooker Corp collapsed in 1987, although this year's losses represent a much smaller proportion of household wealth.

No one in the market is running a case that the Australian Securities and Investments Commission should prevent collapses.

But investors are entitled to question the statement by the ASIC chairman, Tony D'Aloisio, that they have benefited from "proper regulation" in relation to stock lending and its near neighbour, short selling.

Ian Ramsay, the director of the Centre for Corporate Law and Securities Regulation within the University of Melbourne says: "They are the market regulator. They need to be close to the market. They need to have good communication with participants in the market. As things like stock lending and margin lending increase, they need to be alert and proactive."

"I think it's fair comment that they have not been in that position." ON January 29 and January 30 stock lending and Tricom were at the heart of a market stoppage that lasted for two days when Tricom failed to settle a huge trade in shares. When Tricom tried to settle the trades, the stock was not available to settle - it was on loan.

LNK

OZschwitz: Incompetent ASIC knew it all but did nothing

OZschwitz: Incompetent ASIC knew it all but did nothing

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