Stock takes: Securities Commission watches Australian moves to police CFDs

ASIC says the contracts are riskier than a night at the casino. Photo / Getty Images

The Securities Commission is keeping a close watch on new proposals to regulate trading in Australia of controversial investment products called contracts for difference.

The Australian Securities and Investment Commission - Australia's equivalent of our investment watchdog - this week released a report on the CFD market calling for tougher regulations on the industry. It says it will lobby the Government if the industry fails to lift its standards on the products, which involve an agreement between two parties to exchange the difference between the entry price and exit price of an asset.

The products can give an investor the advantage of owning a stock without physically buying a share but are seen as controversial because people can borrow money to invest in them - exacerbating losses if investors make a wrong call.

ASIC has described them as "riskier than a flutter on the horse or a night at the casino".

The report found many investors were oblivious to the risks of CFDs and it was also concerned at the way TV commercials and investor seminars were used to market the products to the public.

Australia's main players - CMC Markets and IG Markets - both operate in New Zealand although IG is a fairly new entrant. Both advertise on the box although they profess to carefully screen their clients to ensure they are financially suitable and knowledgeable.

A spokesman for the Securities Commission said the report was still open for consultation but it saw "obvious advantages" in maintaining co-ordination with Australia.

The commission has had preliminary discussions with its Australian colleagues about issues that have arisen there.

"New Zealand law on derivatives is somewhat outdated and the commission is pleased the current Government review of the Securities Act expressly includes derivatives, something we have pressed for," commission general counsel Liam Mason said.

TWO SIDES

But it seems the two major players don't agree when it comes to change.

IG Markets' Australian chief executive, Tamas Szabo, agreed that the industry as a whole needed to reform.

"We need to come up with some consistent agreement in terms of a policy on client suitability."

Szabo said he expected changes to take place soon.

Any changes IG made in Australia were likely to be introduced in New Zealand too, he said.

But Barry Odes, managing director Australia and New Zealand for CMC Markets, said the company was already following most of the guidelines in the report.

"We provide extensive education programmes ...

"Our objective is to offer clear and accessible information on the features of CFDs, trading with CFDs and the risks associated with CFDs."

Odes said New Zealand had a different regulator and the ASIC report applied to Australia only.

GAINING PACE

At least five parties are understood to have expressed interest in buying the heavily indebted Yellow Pages Group.

Documents with details of the company are expected to go out to potential buyers in the next week or so with bids expected back before the end of August.

But so far Stock Takes understands it's only the private equity players which are circling the assets. No trade buyers have emerged.

That's probably not surprising given the state of other directory businesses around the world.

This time round its likely buyers will be looking to get the business back into shape to take advantage of its revenue generation rather than leveraging it to the hilt.

GONE QUIET

News of what will happen next with investment company Guinness Peat Group has gone very quiet since the sacking of New Zealand director Tony Gibbs from the board.

But Stock Takes hears tensions are still bubbling away over who should be appointed as the new "independent" directors.

New Zealand's institutional investors have banded together and written to GPG demanding to be consulted on the potential appointees and have threatened to call an extraordinary general meeting if the new directors aren't what they consider to be independent.

Only 5 per cent of shareholders are needed to call an EGM and they certainly have enough support to do it. The test will be whether GPG listens to what Kiwi investors are saying or calls their bluff.

There has been talk from the Australian side of appointing Simon Allen and Don Turkington but they may not be seen as the right people to stand up to the executive directors. Stock Takes hears the new appointments are likely to be made in the next month or so before Sir Ron Brierley makes his visit to New Zealand. GPG shares closed down 1c at 67c yesterday.

THE FUN BEGINS

The announcement on Wednesday of Rainbow's End owner New Zealand Experience being put up for sale has sparked interest about who would buy this country's largest theme park.

While it may not be up there with the Gold Coast theme parks it's still the best option local kids have for a quick thrill.

But Stock Takes was surprised when a colleague pointed at the share trading activity of NZ Experience leading up to the announcement.

Shares in the company appear not to have traded at all in the last year until late April when trading picked up with a frenzy.

In late May and early June they hit 20,000 shares traded twice, sending the share price soaring 28 per cent, or 7c, to 32c.

Perhaps investors began putting two and two together in March after NZ Experience's biggest shareholder, the estate of George Ryerson Gardiner - and the trigger for the Rainbow's End sale - sold a significant stake in Ryman Healthcare.

It will be interesting to see if the estate also chooses to exit its stake in its other major Kiwi investment NZ Refining.

NZ Experience shares closed steady at 32c yesterday.

CANDLES AND PROPERTY

The NZX is to get only its second new equity listing this year in the form of property investor DNZ next month.

After more than six months of battling between factions, investors finally agreed to a capital raising plan last week.

A $35 million rights issue will start on Monday although it seems unlikely that many of the retail investors, who have already suffered major investment losses, will be keen to pump more money into the company.

Expectations are that less than a third will be raised from existing shareholders with institutional investors expected to pick up the slack.

DNZ has said it will list on August 16. Stock Takes will be keen to see how the share price travels after its float.

Candle company Ecoya - the sharemarket's only other new equity listing this year - has continued to fall in price since its debut. Yesterday its shares were trading at 82c - down from its $1 listing in May.

IN A SPIN

Shares in ASX-listed agricultural chemical maker Nufarm went into a downward spiral yesterday after it revealed its operating profits were likely to halve and warned of a potential breach in its interest cover banking covenant by the end of July.

The former Kiwi company, which used to be Fernz, delisted its equity shares from the New Zealand stock exchange in 2000 to migrate to Australia but still has $251 million of preference shares listed on the NZX's debt market.

Nufarm's latest downgrade is the fourth this year and its share price has more than halved, dropping from A$10.42 at the start of the year. Yesterday they closed on A$3.75.

New Zealand shareholders may also have been struggling to keep up with the company's bad news if they only paid attention to announcements coming into the NZX.

An announcement early yesterday morning of a dial-in teleconference held the day before would not have been helpful.

Kiwis also had to wait until yesterday morning for the details of the profit downgrade because it was released to the ASX after the New Zealand market closed.