Today we are going to watch an out of control market in McMillan Shakespeare shares and a lot of people are going to be butchered in the wild trading.
In effect McMillan will be way to bet enormous sums on the election result.
In the interests of their shareholders, and to maintain an informed market, McMillan directors pleaded with Australian Securities Exchange officials to keep the stock suspended until after the election. But the ASX said, “Let 'er rip”. Perhaps they could have added that getting into the election betting game will generate big revenues for ASX shareholders because ASX election betting odds will often beat bookmakers.
As we all know, the huge pipes into our market effectively create legalised insider trading. The ASX and the Australian Securities and Investments Commission refuse to clean up our market by cutting them. And so McMillan becomes just another example where the ASX and the regulator are not looking after the interests of the national market – or at least, that is my view.
Let me explain what is likely to happen in the next few weeks. McMillan Shakespeare is the biggest salary packager in the country. Just over a week ago, Treasurer Chris Bowen changed the Fringe Benefits Tax rules on cars and this will decimate the McMillan salary packaging business. But Tony Abbott promised that he would keep the current rules. McMillan is therefore now purely an election punt.
Shorters – using the pipes – can jump in front of genuine McMillan sellers to multiply this morning’s fall. Those who have bought McMillan shares on margin will be sold out unless they have a lot of cash. Because the fall is so steep and sudden many McMillan margin traders will need to put more money in because the amount recouped from the forced sale will not cover the margin loan.
Then, if the opinion polls look good for Tony Abbott, McMillan shares will recover as the big punters say, "This way I can bet millions on the election and the odds are better than those being offered by bookmakers."
I think those who bought on margin and who were forced out by the ASX action will have an excellent case to require the courts to order the ASX to pay damages for allowing a false market and rejecting directors' pleas to halt trading. There are lots of precedents where shares have been suspended when there was no way of knowing the value of a company. It usually happens when the company has solvency issues. Solvency is not an issue in this case, but if anything it is worse because the change was so sudden and unexpected.
Markets can and do shut down trading when events make it impossible to conduct trades fairly. The ASX might say that McMillan shareholders are informed – if the ALP wins the election they get hit; if the Coalition wins they win. Of course there is also a chance Prime Minister Kevin Rudd will back down now that he realises the $1.8 million he claimed to raise from the change is a fiction (Rudd's crazy Canberra tax shuffle, July 19).
I don’t believe that it’s the job of the ASX to suddenly provide an election betting ring which will cost margin traders vast sums. In the eyes of the world it is just another illustration that we look for short-term gains (an election betting ring will give the ASX commissions) rather than providing a sound marketplace.
Perhaps I am old fashioned.