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ASIC Warns on Higher-risk Stockbroking
05.29.2015 The Australian Financial Review

The corporate regulator sounded a warning on Thursday about stockbroking firms moving into higher-risk operations in the wake of the failure of Sydney-based BBY, noting it would have more to say next week on its inquiries into the collapse.


The Australian Securities and Investments Commission has been delving into what went wrong at BBY, particularly after the stockbroking and advisory firm was placed into voluntary administration on May 18. “We have been engaged in the [BBY] situation for quite some time,” ASIC’s Greg Yanco, senior executive leader for market and participant supervision, told The Australian Financial Review. “We will have a bit more to say next week.”


BBY’s demise followed an incident in its exchange-traded options clearing business, which had been growing strongly, but at thin margins. The unwinding and imminent closure of that capital intensive business earlier this month was a factor in the firm entering administration. KPMG was called in after BBY failed to repay a loan to St George Bank, while PPB Advisory was appointed as BBY’s receiver.


Senior manager in ASIC’s market and participant supervision area Nathan Bourne said stockbroking firms needed to be mindful of the risks when wading into different product areas.


“Firms need to be careful when they are moving into new business areas that involve higher risks,” he said.


The Financial Review has learnt that as part of ASIC’s inquiries it has already questioned BBY executive chairman Glenn Rosewall, former chief executive Arun Maharaj, and former project and strategy manager April Yuen. The trio did not respond to requests for comment.


ASIC declined to comment on the specific scope of its work relating to BBY. Last week, in a statement, ASIC said it was further considering the circumstances surrounding the voluntary administration and receivership of BBY, particularly those concerning compliance with laws on governance, disclosure and conduct.


Mr Bourne was also speaking on a panel on Thursday at the annual Stockbrokers Association of Australia conference in Sydney, as 350 industry participants debated evolution in the industry as technology and regulation changed. The conference came as AIMS Financial Group outlined it had completed an asset purchase agreement with the administrators of BBY as the first step in a restructure. The sale, thought to have been secured for a nominal price, may require a deed of company arrangement to get the green light from creditors.


The rebranded BBY Asia Pacific Group would consider bringing in new investors, AIMS said in a statement on Thursday. It also noted that the entity would draw on the licence of AIMS Securities to enable it to recommence trading, bypassing a BBY suspension by the Australian Securities Exchange.


“We want to keep and grow the BBY brand, its people and its business,” AIMS chairman George Wang said.


But the BBY business has already lost many clients that have transferred to other firms while some staff have jumped ship to rivals. Reputational damage is also major hurdle.


When asked about the collapse of BBY at the conference, ASX chief Elmer Funke Kupper said he had confronted criticism for the tight deadline options clients of the firm had to transfer their positions to other brokers.


“People say why didn’t you wait longer, but when a company goes into administration, money doesn’t flow, systemic risk goes up for the entire marketplace,” he said, nothing delays around the transfer of holder identification numbers related to the receivers sorting out a client’s entire relationship with BBY including markets such as foreign exchange.


Mr Funke Kupper also noted a clearing stockbroker had not collapsed in more than three decades in Australia.


The industry also debated the impact of changing technology on the stockbroking model, education standards, and so-called robo-advice taking over from traditional brokers.


“We haven’t seen a lot of it in Australia but I have overseas. It is something we are keeping an eye on,” ASIC’s Mr Bourne said.


He said the regulator was “refreshing its analysis” of dark crossing systems, which allow participants to execute trades between themselves away from the major bourses.