ASX experiences some problems

Sorry, that is about as trading technical as Insider gets. In short, one of the "functionalities" of the ASX Trade platform allows stockbrokers to get price quotes on exchange-traded options from market makers in those derivatives.

Parked between the ASX platform and about 90 per cent of local brokers is the Iress trader platform, which brokers/dealers use for such things as real-time pricing, market information and Iress's version of that options price-quote function.

Yesterday, that function on ASX Trade broke down several times and, while there is a back-up system, it took about five minutes to kick in on each occasion. The last thing the ASX wants, with rival Chi-X gearing up for its assault on the local market, is any sense that its trading platform has issues that make it unreliable.

One broker said the breakdown left dealers effectively "flying blind" in their options trading - which is usually paired with physical share trading, so the lack of information is not as peripheral an issue as might be thought. And, yes, you are right, brokers can instead ring a market maker and still get pricing information, but it is less efficient.

As Insider understands it, though, an Iress-using broker trying to access the pricing function while it is broken at the ASX end (and before the back-up starts working), can generate wider problems within their Iress system - hence the company sending out emails to clients warning them how to work around the issue.

ASX was yesterday working to try to correct the problem, which sources say is not connected with other teething problems from the ASX Trade platform (designed and brought to you by Nasdaq OMX) that caused everything but futures trading to stop working for more than an hour on February 28, and another hiccough on March 4.

FALLING SHORT

IT IS not just sharemarkets that have proved a poor bet for superannuation funds - it is also the professional managers that vacuum fees out of your account.

Standard & Poor's annual survey suggests that, in most cases, you would have earned a better return on the sharemarket portion of your superannuation money by plonking it into the market yourself without the middle manager.

The third annual Standard & Poor's Indices versus Active Funds scorecard (coincidentally, SPIVA), reports that in the year to June 30, the S&P/ASX200 accumulation index (which assumes reinvestment of dividends) beat more than 75 per cent of actively managed general equity funds.

Using the same methods, fund managers did even worse when investing in international equities, with almost 80 per cent of funds falling short of the MSCI world equity index.

The only point at which the general equity managers beat the index, with 51 per cent of funds outperforming the benchmark, was over the past three years.

Insider would suspect that relates to the massive amount of equity raising in 2009, when the corporate world was recapitalising after the financial crisis, and in which fund managers were more often than not offered preferential treatment.

While the Australian market is heavily weighted towards a handful of stocks the banks and major resource companies - the only fund managers who seemed to have earned their fees were those running small capitalisation equity funds.

Over the past five years, according to SPIVA, at least 75 per cent of managers beat the benchmark S&P/ASX Small Ordinaries Index and most probably due to the quirky fact that most brokers and investment banks rarely produce research outside the 300 largest companies.

The under-researched and scrutinised smaller companies therefore offer canny fund managers the best, as S&P call them, "mispricing opportunities" - that is, woefully undervalued relative to their performance.

PLAYING IT SAFE

With the Tax Office throwing its weight around among sharemarket companies, and their sponsors, it was interesting to see Pacific Brands play it safe yesterday to avoid any suggestion that it was not entitled to pay fully franked dividends.

The federal government and Treasury last year signed off on changes to the law that allowed companies to declare dividends even if their balance sheets showed accumulated losses, so long as they had the cash and could pay creditors.

The ATO, in June this year, decided that it had some issues with that interpretation. Insider's reading is that the ATO is arguing that if paying the dividend enlarged a company's accumulated losses, while its net assets were less than share capital, then that payout most likely falls into a capital return category rather than the distribution of tax-paid income.

The Pacific Brands chairman, James MacKenzie, and his board on Tuesday, before yesterday's results report, elected to reduce share capital by the $309.6 million gap between that and net assets a gap created by the impairment charges booked for the year which neatly cancels out accumulated losses in the parent company and should get it past any ATO objections to the fully franked dividends declared.

Insider suspects Pacific Brands is one of many companies that will opt for that apparently safer path until the ATO position is finalised, or a legal precedent is set.

One other small note from the PacBrands results. Insider can only assume it was an oversight in the presentation slides that claimed the company's costs of doing business were $132 million below 2008 levels.

That was the 2010 gap. This year the costs of transport, sales, marketing and administering the company rose, and the gap was reduced to $111 million over the numbers when PacBrands was a local manufacturer.

insider@fairfaxmedia.com.au