opes too confusing

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    Model too confusing for investors: TurnbullFont Size: Decrease Increase Print Page: Print Scott Murdoch | April 10, 2008
    MALCOLM Turnbull has declared the Opes Prime stock-lending model too complicated for retail investors, and will push for greater disclosure as uncertainty hangs over dozens of companies.

    The Opposition Treasury spokesman said yesterday he would advocate clearer disclosure for investment products to protect retail investors from the fallout of future collapses.

    The Opes Prime crisis would have been on the agenda of a meeting between Wayne Swan and Australian Securities Exchange chief executive Robert Elstone in Sydney yesterday.

    Mr Swan met Mr Elstone ahead of meetings in Washington on the weekend.

    Mr Swan has refused to comment on the Opes Prime saga, but stock borrowing and the disclosure of equity derivative activities is now the subject of a Treasury review. Mr Turnbull, former chairman of Goldman Sachs, said he had never seen the Opes Prime model marketed to retail investors.

    The scenario in which investors who borrowed money from Opes Prime were left as net creditors was mainly associated with prime brokers and hedge funds.

    "In the traditional stock lending model the broker is the creditor and the investor is the debtor, but with Opes Prime the broker is the creditor but also a debtor," Mr Turnbull said.

    "Opes Prime is effectively a net debtor to the investor. I think it's an inappropriate type of stock lending for retail investors."

    A growing number of legal cases are likely to examine the difference between disclosures in the lending agreements and materials advertised on Opes Prime's website.

    Victims of the fallen broker have complained they did not realise the beneficial ownership of the stock put up as collateral had been transferred out of their control.

    ASIC is heading the investigation, but refused to comment yesterday.

    "This model of stock lending I have seen used by prime brokers, typically to hedge funds, and they get a cheap cost of funds," Mr Turnbull said.

    "It seems very inappropriate, because it was dealing with a range of investors, some sophisticated and some unsophisticated.

    "One of the things that should have been written on the top of the documents in red letters is 'do you realise you are lending to Opes Prime and that means that if Opes Prime goes into liquidation, you are an unsecured creditor?'. That is the jam these people are in."

    Meanwhile, ANZ is still holding a substantial shareholding, above 5 per cent, in 70 companies listed on the ASX. The retail bank faces a precarious situation in relation to illiquid stocks. In some cases, it has holdings above 20 per cent.

    Taff Greenwood, chief executive of Queensland Ores, which has about 3 per cent of the issued capital outstanding, said the Opes Prime crisis was creating uncertainty. Shares in the tungsten/molybdenum firm have been pushed down, while 2.73 million shares are held by ANZ.

    The company says the outstanding shares are not associated with directors' margin loans.

    "We've been assured there will be a sensible selldown, but I don't know if that can be guaranteed," Mr Greenwood said. "It's not helping, it's damaging."

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