Monday, April 14, 2008

Financial Mayhem

I don't know if you've been following the Opes Prime saga, but I think it points out some weaknesses in the current Australian financial system. Alan Kohler, over at Business Spectator has been following this closely, and I recommend his columns. In particular this one about ANZ and how it ended up with more than 20% of several small caps. Students in my corporate finance class (last semester or next semester) will note that a 20% interest requires a shareholder to make a takeover bid under Australian securities law. Obviously, ANZ wasn't considering this when it took title to securities under lending agreements. Another important point for future investors is the importance of reading the actual document you are signing. It appears that many Opes Prime customers did not realise that they were signing over beneficial ownership of their shares rather than just pledging the shares as collateral. While there may be a case for arguing that the disclosures made by Opes Prime brokers to customers did not properly disclose the lending arrangements, prevention is always the best cure.


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