Call to apply 5pc rule to margin loans

THE body claiming to be the peak organisation for corporate governance professionals in Australia, says directors holding more than 5 per cent of a company's stock that is subject to a margin loan should be forced to declare their interest.

THE body claiming to be the peak organisation for corporate governance professionals in Australia, says directors holding more than 5 per cent of a company's stock that is subject to a margin loan should be forced to declare their interest.

Chartered Secretaries Australia Ltd (CSA) says the Australian stock exchange (ASX) listing rules should be amended to apply a five per cent threshold to the disclosure of margin loans.

Under the ASX's current guidelines, the company can report the value of margin loans tied by directors to their stock if it considers the holding to be "material''.

CSA said the longer-term solution would be to amend the Corporations Act, making it mandatory for directors to comply with this disclosure requirement.

"This would have the added advantage of giving the Australian Securities and Investments Commission (ASIC) much tougher enforcement powers in the event of non compliance,'' it said.

The issue of margin loans has come under scrutiny lately, prompted in no small part by the falling sharemarket.

Founder and chief executive of ABC Learning Centres, Eddy Groves, had to sell nearly all his stake in the company as a steep fall in the share price triggered margin calls on loans he had taken with his shares a security.

CSA chief executive Tim Sheehy said the disclosure of security interests was complex and controversial.

"However, our members are of the strong view that good governance is about keeping the market fully informed,'' he said.

Mr Sheehy said the CSA took into account the need to keep the market informed.

He said this had to be balanced against the costs of any enhanced disclosure requirements and the privacy of directors' personal financial affairs.

"We are certainly not interested in giving information to short sellers and others that would allow them to target particular companies or directors,'' mr Sheehy said.

"But our members don't think that it's good governance for a director to enter into substantial financial arrangements that, if disclosed, could adversely impact that company's shares.''