AUSTRALIA - The downfall of Opes Prime, a Melbourne broker that engaged in securities lending and financing, has spurred calls for greater regulation to promote transparency into short selling and securities lending.
"We've done an analysis to see what's really happening. Across our equity portfolio since January 2008, the utilisation rates - the amount of stock on loan - has actually decreased," said Peter Curtis, senior manager, investments at the A$28bn (US$25.7bn) AustralianSuper industry superannuation fund.
AustralianSuper lends out its securities via its custodian, JPMorgan, Curtis said. Opes Prime was not a counterparty for the fund's lent securities, he added.
Stewart Cowan, executive director at JPMorgan, would not comment on whether Opes Prime was on its counterparty list, but said: "JPMorgan indemnifies our clients against borrower default, therefore we carry out thorough credit reviews to ensure all borrowers are creditworthy institutions."
Most superannuation funds in Australia lend securities through their custodians, who generally over collateralise the securities to protect clients in the event that a lent security cannot be recalled.
Several proposals have been mooted from within the industry to improve transparency.
"It's possible through CHESS [equities reporting and clearing system] code stock which is out for lend - and by that means you could publish every day not just the volume of trade but the total volume of the security that's out to lend that would be," said Michael O'Sullivan, CEO of the Investment and Financial Services Association.
"That would be a useful proxy for the amount of stock that's lent."
Treasurer Wayne Swan has also proposed a legislation forcing disclosure of so-called "covered" shorts. "Naked shorts", in which a stock is sold short without the stock being owned, are already disclosed to the ASX, but ambiguity exists around the treatment of "covered shorts" in which the stock is borrowed before being shorted.
The ASX has welcomed Swan's decision, and announced a public consultation to invite comment on how the ASX might change its rules to comply with intended legislation.
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