Retail Investors Draw the Short Straw

Submissions are now flying in thick and fast to the government’s financial system inquiry headed by David Murray. The Murray inquiry, a broad one-in-twenty year review, aims to ensure the financial system transfers money from savers to borrowers in a sane, equitable and relatively low cost manner.

Good luck with that. Judging from the submissions this week, naked self-interest rates high. The banks have made submissions calling for less regulation for themselves and more regulation of the shadow banking sector. Brokers want less regulation for themselves and more regulation for the shadow broking sector. Challenger wants more regulation on the competing annuity type products issued by banks.

Bucking the trend was a refreshingly sensible proposal put forward by Geoff Wilson of Wilson Asset Management concerning the onerous disclosure requirements for listed companies to raise money from retail investors. As the rule stands, other than for rights issues to existing shareholders, a full prospectus is required to issue new shares to retail investors.

As Wilson points out, the prospectus requirement was brought to protect retail investors, but is superfluous when the shares already trade on the market. Retail investors are already free to buy and sell the existing shares as they see fit, but without safeguards aren’t allowed to buy the identical new shares that are usually offered at a discount.

Rather than help retail investors it penalises them because companies save themselves the trouble and instead go to sophisticated and institutional investors at the big-end of town. Wilson estimates that of the $340bn raised by listed companies in the last decade, half was through selective private placements that retail investors were excluded from.

Retail investors have been drawing the short straw on this for too long. It’s a situation they shouldn’t have to tolerate and we wholly support the dropping of the disclosure requirements. We hope the changes are adopted, and that the ASX BookBuild provides an accessible means for retail investors to participate in new share issues.

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