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Govt's hand forced on margin lending.

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Friday 11 April 2008

Govt's hand forced on margin lending


MARK COLVIN: The collapse of another broking and funds-management firm has forced the Federal Government to step in. It's announced that it will take control away from state governments to regulate financial services. Canberra will also review the Corporations Act. 


Administrators McGrath Nicol have been appointed to Lift Capital, which collapsed last night owing millions of dollars to 1600 investors. Lift Capital had a business model similar to another failed broking firm Opes Prime. 


Stock market analysts have welcomed the move to regulate the industry. 


Brigid Glanville reports. 


BRIGID GLANVILLE: For the second time in less than a month a stockbroking firm has collapsed owing millions of dollars.  


Sixteen-hundred investors who took out margin loans with Lift Capital are affected. They borrowed against smaller companies which are more exposed to the ups and downs of the market. 


The financial industry has been calling for the Federal Government to tighten the regulation of what's known as margin lending. Today it answered those calls. 


The Minister for Corporate Law Senator Nick Sherry says disclosure documents may as well be in Latin as they are so hard to understand. 


NICK SHERRY: The Rudd Government has taken a number of decisive steps in regard to market transparency and regulation. We've announced that we will be transferring the regulation of financial services in the state jurisdictions to the Commonwealth. That does include areas involving margin lending which is currently a significant issue. 


BRIGID GLANVILLE: The Federal Government is also changing the Corporations Act to deal with the controversial issue of short selling, which is gambling that companies will fall. 


NICK SHERRY: We've commenced the significant task of re-writing, simplifying the very complex disclosure documents in financial services. Disclosure documentation in financial services, this includes margin lending, may as well be written in Latin for all that Australian investors can understand it at the moment.  


That's a top priority, to ensure that Australian investors and consumers are able to understand simple, standardised and readable disclosure documents, and that includes issues around the level of risk. 


BRIGID GLANVILLE: Senator Nick Sherry also says the Government will consider giving the corporate watchdog ASIC more powers to investigate firms. 


Failed stock brokers Opes Prime and Lift Capital had similar business models. 


Roger Montgomery from Clime Asset Management has welcomed tighter regulation. 


ROGER MONTGOMERY: Well an investor needs to, they obviously need to read contracts. Contracts are there for a reason; they're an agreement between two parties to do something and you need to understand those contracts before you enter into them. 


The bull market, a bull market is a classic scenario where people rush and fear missing out and so, you know, the Is aren't dotted and the Ts aren't crossed. 


BRIGID GLANVILLE: Professor Fariborz Moshirian is a banking and finance expert from the Australian School of Business at the University of New South Wales. He says the role of the Federal Government in regulating the financial services sector is essential. 


FARIBORZ MOSHIRIAN: Well it may not necessarily stop collapse of some financial institutions or brokers, but it certainly will enhance the capacity of regulators and also market to detect some of the problems that in recent times we've been facing. 


BRIGID GLANVILLE: In the mean time 1600 investors will have to wait until next week to find out how much money they will receive from the collapsed firm Lift Capital. 


MARK COLVIN: Brigid Glanville.