# Lack of Market Regulations



## prawn_86 (17 March 2008)

Ok so here is something which has really been annoying me lately.

Has ASIC and the ASX given up on their roles? Do they just not care? Or are they actually hamstrung by something?

A few illustrations of total lack of disclosure: (these are just the ones i am aware of without any research whatsoever, feel free to add more)

All the lack of disclosure of directors margins loans.

IRL lending MON $7mill, which is like 30% of IRLs market cap.

TTY lending OLY $2mill, when OLY was effectively broke.

Bear Stearns debacle (cant blame ASIC, but surely America has regulators)

The countless times SP queries have been issued with a "we know nothing" response, only to have a price sensitive announcement within the week.

VRE saying all good, then are in administration within a month.


Why isnt anything been done??

I understand materiality is worded in a lot of 'rules' but I think ASIC should just clear cut say, this is what you have to do. Perhaps some law buffs could touch further on this point.

Has anyone actually lodged a complaint with ASIC and recieved more than the standard "thanks we will look into it" response?

Discuss...


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## Julia (17 March 2008)

There was an interesting interview on ABC Radio National's programme "In the National Interest" on Sunday.

Here is the link to the interview:
http://www.abc.net.au/rn/nationalinterest/stories/2008/2189580.htm


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## Rainmaker2000 (17 March 2008)

Having worked across these relevant areas of government, I can just say that the system does not work cause it is not designed to work......

For example, TLS knows this is the case and currently has 47 separate legal actions against the ACCC......someone tell me how the ACCC is equipped to facilitate competitive markets when they are in this predicament...the funding and expertise is just not there...

ASIC is even a tougher job and they are just funded to fail.....it is a laugh that they can regulate their relevant companies effectively.....the regulations are there, there's just no resources.....A system designed to only give the perception of effectiveness


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## prawn_86 (17 March 2008)

Yeh those were my suspicions too Rainmaker.

So the pollies and thier business mates can virtually do what they want without fear...

Now I just have to work myself up into that position


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## Dezza (17 March 2008)

Most of the times the ASX questions a company about their share price, they just send a fax back saying they don't know why, then a few months down the track they come out with a trading halt and *poof*, there goes the price again this time with company reasonsing. Little bit sus sometimes, but I guess we're not working in an efficient market so you have to expect it. 

How many companies are out there in the public domain being regulated? And how many people work for the regulators? Don't think they add up.


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## prawn_86 (17 March 2008)

As an aside, does anyone know what someone working for ASIC would get paid?

Its a public servant role, so im assuming there would be a decent pension at the end of it 

And by the sounds of it they dont do much. LOL


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## Dezza (17 March 2008)

Current vacancies: http://www.asic.gov.au/asic/asic.nsf/byheadline/Available+positions+by+title?openDocument

Current salaries: http://www.asic.gov.au/asic/asic.nsf/byheadline/Employment+conditions%2C+including+salary?openDocument

Not too bad.


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## prawn_86 (17 March 2008)

Dezza said:


> Current vacancies: http://www.asic.gov.au/asic/asic.nsf/byheadline/Available+positions+by+title?openDocument
> 
> Current salaries: http://www.asic.gov.au/asic/asic.nsf/byheadline/Employment+conditions%2C+including+salary?openDocument
> 
> Not too bad.




Cheers Dezza,

Of course I wouldnt think of looking at the source would I 

As strange as it sounds, I actually think it would be interesting working for them for a couple years. Would probably get tedious though not making any actual progress.


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## Dezza (17 March 2008)

Pays not too bad once you work your way up the ladder.

And as you said, I'm sure the super/pension is alright too being a govt. position. 

I was thinking, what if the regulators were privatised?  Bonus incentives would be to investigate a minimum of 5 companies per week and have one prosecuted at least once a fortnight to 'Meet Expectations'. (Note: forget about so-called conflicts of interest for a sec).


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## prawn_86 (17 March 2008)

Im sure the business council would quash that idea as soon as it was out of a politicians mouth.

Good idea though...

What do others think? I reckon your onto something Dezza


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## steven1234 (17 March 2008)

I also found it unusual that companies were issued a so called "speeding ticket" when their price was rocketing up.  What happend to all the "speedings tickets" when the prices were dropping at a greater rate than they went up??


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## chops_a_must (17 March 2008)

prawn_86 said:


> Im sure the business council would quash that idea as soon as it was out of a politicians mouth.
> 
> Good idea though...
> 
> What do others think? I reckon your onto something Dezza




Then who will police the police? Coastguard?

I don't think you can privatise regulation. It just doesn't work. Far too easy to corrupt.


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## Dezza (17 March 2008)

ASIC Internal Affairs? 

If that doesn't work, just get the TV crew from Border Security into the offices. If they can undercover a small packet of drugs hidden in a teddy bear, then they can undercover anything!


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## happytown (17 March 2008)

Rainmaker2000 said:


> ...
> 
> ASIC is even a tougher job and they are just funded to fail
> 
> ...




nail, head, hamer, hit, rainmaker

resources - people and money limit their capacity

further limiting factor is the legislative reach

currently the aicd and others are further seeking to diminish the extent of duties owed by directors, to name but another hurdle

and labour isn't looking to spend more in the upcoming budget

and the courts are not a freeway devoid of traffic

and what is with that spanner in the works called discretion

one thing asicists can't be accused of, in reality, is not doing much, public perception may differ

i'd gladly accept a summer clerkship there

cheers


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## Wysiwyg (17 March 2008)

Dezza said:


> Pays not too bad once you work your way up the ladder.




Ahh yes, the ivory tower awaits.

Back to thread ...... this excerpt from Turbo Trader shows a good understanding of "prior knowledge".  In reality it is a bit hard to trace the source but the rules are very clear in the second excerpt.



> Traders know that most stocks rally on the release of a good announcement but have you ever wondered why some stocks have a surge in volume for no apparent reason?
> 
> Whilst the reason may not be "apparent" to everyone, *the obvious increase in **trading volume would suggest that someone, somewhere,* *knows something and positions are being taken in readiness*.
> Of course this new found interest may be purely coincidental but, if it is more than a coincidence, then there may just be a good reason to buy a few shares.






> Under s1043 of the Corporations Act, the insider possessing the inside information cannot acquire or dispose of Division 3 financial products, either directly or indirectly, using inside information.
> 
> They are known as Division 3 financial products and include:
> 
> ...



.


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## prawn_86 (11 April 2008)

In light of the recent Opes and Lift failures i thought i would bump this thread.

It seems common opinion that the regulators are hamstrung by lack of resources, so apart from gov action (which wont happen) is there anything that can be done?


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## Julia (11 April 2008)

Prawn, why are you so sure government intervention is not possible?

Mr Rudd is going all out fixing the world at large at present.
To address the appalling lack of regulation in the little Aussie share market shouldn't be too big an ask?

When he gets over putting things to rights with the Tibetans and the Chinese,
then perhaps thinks up a nice speech for the Japanese to appease their chagrin about left out of his current sojourn in their part of the world, I'm sure he will find time to do something about Australia.


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## prawn_86 (11 April 2008)

Thats not some sarcasm i hear creeping in is it Julia.

Seriously though if anything was left up to politicians (either party) nothing would get done. Thank god for private industry...

My question is how can the private sector help to regualte the market better? They probably dont even want to though


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## reece55 (11 April 2008)

prawn_86 said:


> My question is how can the private sector help to regualte the market better? They probably dont even want to though




Absolutely Prawnster, most entities outside of the ASX 300 see regulation as a stumbling block to going about their business....

I think one issue that needs to be addressed properly, with enforced consequences, is tracking down the substantial shareholding regime..... There have been soooo many abuses lately, it is beyond a joke and as far as I can see, ASIC really haven't been chopping heads off. Personally, I think the ASX's monitoring is fine, but ASIC needs a kick up the but....

Just my 

Cheers


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## Broadside (11 April 2008)

prawn_86 said:


> In light of the recent Opes and Lift failures i thought i would bump this thread.
> 
> It seems common opinion that the regulators are hamstrung by lack of resources, so apart from gov action (which wont happen) is there anything that can be done?




for starters prawn (and I agree with you there is a major problem), the ASX shouldn't be the organisation monitoring trades...that's a gross conflict of interest as they rely on trading volume for income.  The market is not transparent and the removal of broker codes by the ASX a couple of years back has made things worse.

Competition is coming for the ASX and it can't come fast enough as far as I am concerned, the ASX has let retail investors down badly.

Of course ASIC needs to be better resourced to attract talent, and have some successful prosecutions because at the moment they look inept.


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## reece55 (11 April 2008)

Broadside said:


> for starters prawn (and I agree with you there is a major problem), the ASX shouldn't be the organisation monitoring trades...that's a gross conflict of interest as they rely on trading volume for income.  The market is not transparent and the removal of broker codes by the ASX a couple of years back has made things worse.
> 
> Competition is coming for the ASX and it can't come fast enough as far as I am concerned, the ASX has let retail investors down badly.
> 
> Of course ASIC needs to be better resourced to attract talent, and have some successful prosecutions because at the moment they look inept.




I have to come to the defense of ASX here.... Personally, being involved in the secretarial side of several companies that are listed, they do an excellent job of monitoring, trust me they don't miss a beat......

The problems like these off market short selling issues and Opes Prime are Corporations Act issues, which reside with ASIC. It is ASIC that hasn't been doing it's job. The old MD of ASX who is now the head of ASIC has been doing a good job of shifting the blame though!!!

Prawnster, Opes Prime is another highlight of the abuses of the substantial shareholder regime... I haven't seen a 603 or 604 from ANZ x20 yet, however they have over 5% of many companies. What about the takeover regime with a company like the Austin Group, is that really appropriate. ASIC should be going after ANZ and Merrills for not obeying Corps Law......

Cheers


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## Broadside (11 April 2008)

reece55 said:


> I have to come to the defense of ASX here.... Personally, being involved in the secretarial side of several companies that are listed, they do an excellent job of monitoring, trust me they don't miss a beat......
> 
> The problems like these off market short selling issues and Opes Prime are Corporations Act issues, which reside with ASIC. It is ASIC that hasn't been doing it's job. The old MD of ASX who is now the head of ASIC has been doing a good job of shifting the blame though!!!
> 
> ...




reece....that may be the case....but there is definitely a conflict of interest.  In such matters perception counts.  The market is not transparent and the ASX has also contributed to that.

On the ASIC side, if ANZ was the beneficial owner of Opes shares, why did they not declare substantial s/holder notices across many many stocks...that would have alerted many of the "naive" Opes clients that there shares weren't actually theirs!  

And you'd have to agree notification of change in shareholdings in general is very lax and not strongly enforced?  It's hard enough in this market without the disclosure cards also being against you.


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## Trembling Hand (14 April 2008)

*Watchdogs are a joke - Sack them*

Another good article from Michael West 



> Opes Prime had warned both the ASX and ASIC in February that it was in breach of its liquidity requirements. Both failed to act. Any client of Opes whose exposure to the collapsed Prime broker increased between that time - at the latest - and the collapse in March presumably has an action against the regulators.




How much longer can the Boys at ASX hang on to their conflicting interest of being profiteers and regulators of their own market? It doesnt take a genius in free market functioning or either a mad anti-capitalist to see the absurd role they have. And with all of the burnt Mom & Pop bull market punters screaming out about shorts & now systemic failures & the media salivating at a scandal AND a new government trying to look tough and on the 'working families' side the ASX will surely be hung out to dry here. 

Will be a ripper to see the first lawyer take aim at them and what there defense will be. It has been very bizarre their total lack of comments up to this point.


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## prawn_86 (14 April 2008)

Not many out there interested in this.

just a state of complacency that things will not change? Or do people just genuinely not care abut what regulations happen in our market?


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## Julia (15 April 2008)

prawn_86 said:


> Not many out there interested in this.
> 
> just a state of complacency that things will not change? Or do people just genuinely not care abut what regulations happen in our market?




Prawn, another option, perhaps?  That there's a sense of despondency and despair born of the powerlessness of the small individual to effect any change.  The 'regulatory authorities' will do or not do whatever they want.

A bit similar to feeling outraged about stuff like the baby bonus from politicians.


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## prawn_86 (15 April 2008)

Don't get me wrong Julia, I'm enough of a realist to know that we small investors cannot affect any change, just as a small group of voters cannot affect political change.

I did think however, that more people would have an opinion on the matter though


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## prawn_86 (16 April 2008)

> A DIRECTOR who was an architect of insider-trading legislation in 1985 has regularly bought his company's shares shortly before market-sensitive announcements.
> 
> As a director of the junior iron ore and gold explorer Pluton Resources, Ray Schoer made six share purchases in the seven days before company results or a big company announcement. He also made up to 18 purchases outside the company's published share trading policy for directors.
> 
> Mr Schoer is well known as the chief executive of the National Companies and Securities Commission between 1980 and 1990 and in the next five years as national director of the Australian Stock Exchange.




http://business.smh.com.au/director-defends-timing-of-purchases/20080415-26dr.html?page=1

More of the old boys club?


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## ithatheekret (16 April 2008)

I think the $300K floor on enquiries should be scrapped for starters , IT crimes are just the tip of the iceberg . 

But then that would mean ASIC would actually have to do something other than being a political party tool , good for a headline here or there .

Then perhaps the culture would be stopped from spreading farther abroad , yeah righto , suuure , anything to delude ourselves with hey .........

Okay so why did they take away the client codes from view in market depth for brokerages identification ?

When a simple hidden code in market depth volumes is just as plausible a way to signal intent to others in the know .

I think the initiative to actually do anything that involves mountains of paper work is a cyclical event , that follows or is enacted by an Administrations whim or event driven intent .

The free and fair market theory is just a game  , especially when it's good business to break the law . 

If they [Admins ] were serious about it , knowing the effort involved to police the industry is suuuch a heavy task , why don't they simply increase the penalty to levels that would scare any thoughts of it out of the system or at least leave only the stupid and overly confident to take up the practice ???

I think ASIC should have their own courts for what it's worth , but then why spend millions on buildings that will rarely get used under current directives ?  

I don't think many pollies want to police their own tax bracket either , until all the offenders friends have disappeared or gotten too close for comfort . Or the floor would be lifted and the scope of enquiries would be allowed to take up the role of being a public office and address the goings on much further down the line at an individual level , like the retail investors ..... shock , horror , heaven forbid .

The exposure at this level is much higher and this is where the market get's it's impetus from , institutions can buy all they want , but they need retail investors to make the real profits .

If they expect to manage IT's and other discouraged activities effectively , they would need full regulation and a task force , but I can't see that happening , except for the odd bout here and there until the next Admin .

Definitely a policy issue . Not that it will get much notice . But policy needs to get descriptive enough for the law to be enacted properly , even then it will have hiccups and a bit of gas to get over , yet alone the warts . As it stands ASIC doesn't have that much muscle nowdays , it's never been able to play catch up either , or it's avenues of prosecution would not revolve around a budget , it would be based on the law , with a clear directive backed up by a clear policy .

Until that happens , I'd be sticking to the Minties .


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## chops_a_must (16 April 2008)

prawn_86 said:


> In light of the recent Opes and Lift failures i thought i would bump this thread.
> 
> It seems common opinion that the regulators are hamstrung by lack of resources, so apart from gov action (which wont happen) is there anything that can be done?




You don't buy shares of, or use products from, companies you don't think have an acceptable corporate operation framework. I wouldn't have touched ANZ with a barge pole previously because of some things in Iraq they were involved in.  And it appears they haven't lifted their game at all, standards wise... i.e. Opes Prime.

You can also downramp... according to VRE loyalists, I downramped it right into administration, so it can work. Lol! Or pick on ardent supporters of stock despite the company's incredibly questionable actions. After all, they are the people voting with their feet as to corporate actions.

Probably most importantl, is to contact companies or to get someone to ask tricky questions at AGM's. Worked for WOW when they were doing something pretty low over here last year. Still... I could never hold them for the same reasons.

But you know... free hands and all that...


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## prawn_86 (16 April 2008)

While i agree Chops that it is up to indivudual investors to decide where they put thier money, and they need to read the fine print etc etc

The thing that annoys me is the fact that illegal acts are being blatantly carried out and no one is getting reprimanded. Its not as though the laws have changed, old rules/laws are currently being broken and ASIC are powerless to stop it.


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## doctorj (16 April 2008)

The way I see it market regulations are a little like a lock on your front door.  They're very good at keeping honest people honest but are poor at preventing those who proactively seek ways to break the rules.

The reality is, in Australia we actually have quite a robust and effective regulatory system.  Take the insurance industry as an example - whether the insurer is based in Sydney, Perth or 100km west of Ballarat they're all going to be subject to the rules set by APRA. Compare that to the US where the regulator (and the rules) vary from state to state.  In fact, there's pressure within the US to modernise their system and the Australian system is being used as a model for that regulation regime.
The problem is that the number of things that can go wrong are infinite and regulators are focused on developing and enforcing a quantitive regulatory system.  This brings me back to the 'locks on doors' analogy.  A finite set of quantitive rules will make sure the good companies stay well behaved but they inherently can't deal with all situations.

Companies will always fail and the reality is that failure is healthy for the economy.  That said consumers need to be protected to some degree.  Perhaps a more qualitative approach is in order?


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## cuttlefish (16 April 2008)

prawn_86 said:


> http://business.smh.com.au/director-defends-timing-of-purchases/20080415-26dr.html?page=1
> 
> More of the old boys club?




I've been following Pluton and haven't seen any evidence of the pattern that this article implies.  Ray Schoer has been buying shares in small quantities with monotonous regularity - usually on a day when there's been some selling down of the stock - typical for a long term investor averaging in on dips.  Given the amount of times he's bought stock I think its likely to be just co-incidence that he's bought near announcements.  

This might sound naive on my part, but I don't believe I am being naive, and this is the reason:- Ray is the guy that wrote the rule book on insider trading - so would he be that stupid to risk an insider trading charge for a paltry $30,000 or so worth of stock?

If you look at the pattern he's been buying stock once or twice a month for a while now - so the odds on one of those purchases being within seven days of an announcement are pretty high given there's only 20 trading days in a month.

What they should be looking with PLV though is the substantial shareholder notices on this stock - I'd love someone to explain to me whats been going on there.


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## prawn_86 (16 April 2008)

I actually thought there was a rule preventing directors buying a certain time period before or after price sensitive announcements. Obviously i was wrong, and those rules are set by individual companies.

I personally think it should be set by ASIC, so it is the same across the board for every co.


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## reece55 (16 April 2008)

doctorj said:


> The way I see it market regulations are a little like a lock on your front door.  They're very good at keeping honest people honest but are poor at preventing those who proactively seek ways to break the rules.
> 
> The reality is, in Australia we actually have quite a robust and effective regulatory system.  Take the insurance industry as an example - whether the insurer is based in Sydney, Perth or 100km west of Ballarat they're all going to be subject to the rules set by APRA. Compare that to the US where the regulator (and the rules) vary from state to state.  In fact, there's pressure within the US to modernise their system and the Australian system is being used as a model for that regulation regime.
> The problem is that the number of things that can go wrong are infinite and regulators are focused on developing and enforcing a quantitive regulatory system.  This brings me back to the 'locks on doors' analogy.  A finite set of quantitive rules will make sure the good companies stay well behaved but they inherently can't deal with all situations.
> ...




Exactly DocJ, completely agree here........

We already have a system that is, in some respect, more complicated and stringent than many other nations in the world. We don't necessarily need more legislation (although some elements of the substantial shareholder regime needs to be reworked, for instance), we just need the regulators (ASIC) to actually start chopping some heads off of those people who continually break the rules, regardless of their financial stature in the market place....

Inevitably, over regulation just ends up making things harder for those companies that always do the right thing - those that break the rules are always going to, regardless of how high the bar is set....

Cheers


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## reece55 (16 April 2008)

prawn_86 said:


> I actually thought there was a rule preventing directors buying a certain time period before or after price sensitive announcements. Obviously i was wrong, and those rules are set by individual companies.
> 
> I personally think it should be set by ASIC, so it is the same across the board for every co.




Prawnster....

That would be a little bit difficult to implement across the board...

Example: Should all company directors be barred from buying shares for a week after an announcement of financials? Sure, for Wollies, the answer is a definite yes. But what about a speculative Oil and Gas play, who is continually making losses? In my opinion (in the case of the O&G entity), it doesn't matter. 

Securities trading policies need to be modified by Company to suite the nuances of the company concerned. What I think would be useful is to see ASIC hold entities accountable when the directors breach their own policies, which does happen. Have a look at what is happening to the ex QGC Company Secretary - good example of what should happen more often...

Cheers


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## doctorj (16 April 2008)

prawn_86 said:


> I personally think it should be set by ASIC, so it is the same across the board for every co.



I think your looking at the problem from the wrong side.  The problem is not director's buying when they shouldn't - the problem is continuous disclosure.

Put it this way.  If a director buys shares on day 1 and drilling results are back from the lab  much earlier than expected on day 5 - should they delay the release of the information? 

Insider trading is almost never a problem with rigorous continuous disclosure and proper use of trading halts.


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## Wysiwyg (16 April 2008)

Julia said:


> *That there's a sense of despondency and despair born **of the powerlessness of the small individual to effect any change. * The 'regulatory authorities' will do or not do whatever they want.




I think this covers the broader social system too.


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## Julia (16 April 2008)

There was an enlightening report on the 7.30 Report this evening about insider trading by company directors, specifically the buying of large quantities of shares during the period after the closing of the books and the market announcement.

Surely this should be easy enough to police and should be stopped.

The ASX was also accused of failing in its charge of policing the regulations.
In the face of a suggestion that they can't adequately do this and run a for profit business at the same time, their spokesman of course denied that they were failing in any way.

Imo there is a decided bad odour attached to the market at present.


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## doctorj (17 April 2008)

Julia said:


> Imo there is a decided bad odour attached to the market at present.



I think its more the media looking to draw on Joe Public's desire to outsource blame for the downturn in their portfolios and superannuation.

If its not directors selling shares, it's margin loans, short selling, stock lending, regulators, 'rogue traders' or the direction of the wind.

The reality is market cycles will go on, as will people's inherent nature to blame others for their losses in life and the markets.

There's no story here.  It's all hype.


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## Julia (17 April 2008)

doctorj said:


> I think its more the media looking to draw on Joe Public's desire to outsource blame for the downturn in their portfolios and superannuation.
> 
> If its not directors selling shares, it's margin loans, short selling, stock lending, regulators, 'rogue traders' or the direction of the wind.
> 
> ...



Can't agree that it's all hype, Doctorj.   I don't think the average person feels OK about their shares in superfunds being used by borrowers to short and drive down the price.
And no, it's not hype that directors are e.g. buying large quantities of shares prior to a good profit announcement which at that stage is not known to the general market.  Imo that is insider trading and should not happen.


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## prawn_86 (17 April 2008)

I have to say I dont think it is hype Doc, or at least it shouldnt be.

Re short selling etc, if its within the laws then I have no problem with it.

What annoys me is the fact that directors, companies etc are breaking current laws blatantly and getting away with it.

ASIC is hamstrung and 99% (my own figure ) of those that break laws get away with it.


Below is my quote from my 1st post. All these things are illegal and yet nothing (that we know of) has been done.



> All the lack of disclosure of directors margins loans.
> 
> IRL lending MON $7mill, which is like 30% of IRLs market cap.
> 
> ...


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