Maybe it’s because we weren’t on the ball yesterday morning. It was a Monday after all. But in the afternoon we got around to reading about the two Babcock & Brown directors that had resigned – Dieter Rampl and Joe Roby.
Joe Roby has an impressive CV. He has been Chairman Emeritus of Credit Suisse First Boston, an adviser to the Harvard Business School, and a director of the New York Stock Exchange and Advanced Micro Devices.
Dieter Rampl’s CV is pretty good too. He is chairman of the Italian bank Unicredit, a director of the Bayerische Borse and director of Bayern Munich Football Club.
Oh, and he was also a director of Bayerische Hypo-und Vereinsbank (HVB). You may recall that HVB is reported to be the bank that has refused to release $70 million in cash deposits back to B&B.
Being the cynics that we are we can only come to two conclusions on this. One is that things must be so bad at B&B that even an ex-director of HVB was unable to convince them to let B&B have the money. Or, that Dieter had one too many Holsten Pils’ and spilled the beans to HVB on what the real story is.
Or maybe neither happened and it is a coincidence. We may never know.
Short Selling – It’s Bigger than Ben Hur
Last week we mentioned how the ASX would release a daily Gross Short Sales report. This report is published every day on the ASX website detailing the gross number of short trades executed the previous day.
We did say that we would give it time to settle down and revisit it in a couple of weeks. Well, four days seems long enough.
After re-reading the ASX circular on the new covered short selling regime it appears we made an error last week. Our assumption was that the daily report would show all ‘open’ short positions in a stock. This appears to be incorrect. Instead, in their wisdom, the ASX are only publishing the daily volume of short trades.
So, looking at today’s report for instance, a couple of points stand out. First is the daily short selling volumes are greater than we thought they would be if you compare it to the total volume traded in a stock.
BHP Billiton [ASX: BHP] had nearly three million shares traded short yesterday. Compared against the total number of outstanding BHP shares of 3.3 billion that only equates to less than 0.1%. However, when you compare the three million shorts against yesterday’s share turnover of about 18 million shares then this is nearly 17% of the daily turnover that is going short.
A more bizarre one is Fairfax Media [ASX: FXJ]. According to the short report over four million shares in Fairfax were traded short yesterday. Again, as a percentage of its total outstanding shares it is only 0.26%. Yet, as a percentage of yesterday’s traded volume of about 5.5 million shares it equates to 73%.
We just make the point out of a matter of interest. Remember that only ‘covered’ short selling is now allowed on the ASX. This means that the brokerage firm executing the trade must be satisfied that the short seller is able to deliver the stock on T+3. Also, as we understand it, the report only shows the gross amount and does not take into account short positions that may have been closed out intraday.
And we still do not have a problem either with the concept or the practice of short selling. After all, in order for a short sell to go through there must be someone else who is prepared to buy them. Hence the argument that short selling helps to add liquidity to the market.
There are many explanations for the seemingly high day-to-day shorting volumes. One is obviously those terrible hedge funds. Another is the retail investor using Contracts for Difference (CFDs). Another reason could be institutions reweighting portfolios. And another could be companies that are hedging their DRP schemes. In addition there are probably another dozen or more explanations.
The upshot of it is that the ASX will need to provide a more thorough short selling report that displays more meaningful information than what it is supplying at the moment.
Who Benefits from Trading Halts?
A quick word on the issue of companies going into a trading halts. It seems the main reason the ASX operates a trading halt policy is to maintain an orderly and informed market.
You could argue that it is sensible to have such a policy – to avoid wild price gyrations while there is some uncertainty over a news event. But it denies buyers and sellers the opportunity to either get in or get out of a stock at a price which they are prepared to trade at.
Instead, as we have seen with Babcock & Brown, shareholders have been unable to transact in the shares since last week, and now they are likely to be delisted. By allowing trading in the shares it could have given sellers the opportunity to sell up and walk away with their tax loss booked, and buyers the opportunity to have punt on a stock that would have been trading at about 10 cents.
But never mind, it is 99% certain to be academic now, as following the suspension the ASX has purged all orders from the system. Last rites are definitely about to be administered.
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