Broker Data, page-39

I think the Fundamentals and Calculating Value is far more significant in my opinion then Market SNAPSHOTS: That being said they do matter and are interesting in my opinion.

BBY administration leaves brokers, investors and staff in limbo

http://www.abc.net.au/news/2015-05-19/bby-administration-leaves-brokers-high-and-dry/6481832




Photo: The ASX has suspended BBY from trading after the company entered administration on Monday. (Sergio Dionisio, file photo: Getty Images)

Map: Australia

Thousands of investors are bracing themselves for widespread losses following the collapse of one of Australia's biggest broking firms, BBY.

Stock brokers who used BBY — run by executive chairman Glenn Rosewall, son of tennis great Ken, who also is on the board — to clear trades have been collectively left millions of dollars out of pocket.

Those third party firms' own clients' funds now also are potentially under a cloud.

BBY — which was one of Australia's biggest options traders and provided clearing facilities for smaller broker-dealers, known in the industry as shadow brokers — is understood to have come under pressure following recent steep share market falls, particularly in bank stocks.

The ASX suspended BBY from trading on Monday after Mr Rosewall appointed KPMG as administrators, which then prompted one of the broker's major creditors St George Bank to appoint PPB as receiver and manager.

There was no warning, on Friday the money just didn't turn up.

Shadow broker who is a BBY client

About 25 shadow brokers who used BBY were alerted to serious problems at the firm on Friday when commissions owing from April were not paid.

"We're furious, there was no warning that this was going to happen," said a director of one firm, who did not want to be named and is owed in excess of $100,000.

"Our business is now static until we can finalise agreements with a new clearing house, but we're seriously out of pocket and have bills to pay."

Shadow brokers caught up in the collapse are stunned and angry.

"There was no warning, on Friday the money just didn't turn up and clearly BBY knew there were problems before then because we're now reading that Glenn Rosewall went and secured a $6 million loan last week," a broker told the ABC.

"It is disgusting that it has been allowed to happen."

'Weaknesses in BBY's risk management'

There have been persistent questions surrounding the governance at BBY.

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The firm boasts that it turns over $2.4 billion of Australian equities each month, but it has been its expansion into the high risk world of options trading that has caused the meltdown.

Those who engage in options trades are required to have adequate capital backing them, in case the market turns against them, and the broker is required to ensure the funds exist.

However, when markets move violently as they have in the past month, investors can be caught short, leaving the firm with the responsibility to cover the shortfall.

In January, the Australian Securities Exchange hit the firm with a $180,000 fine for failing to have sufficient funds to cover a $192 million transaction in Aquila Resources shares made in June.

Had the ASX not given BBY extra time to round up further collateral, the broker may have been in default and insolvent then.

The exchange was scathing of the broker's risk management practices.

"BBY did not have an appropriate management structure in place", it noted, adding, "the contraventions appear to have occurred because of weaknesses in BBY's risk management and compliance framework (specifically ... in terms of its management oversight and decision making ...)."

You have a trust account, you have a working account, it's pretty simple stuff.

Source close to BBY...

The ASX also raised concerns with a security deposit of $29 million being placed in the firm's general account, not its trust account.

A source close to the company with over a decade's experience in the industry told the ABC it is a mistake that should never be made.

"You have a trust account, you have a working account, it's pretty simple stuff," he said.

In January, the exchange ordered BBY to improve its risk management systems and processes and independent experts provided a number of recommendations about where the firm could improve.

BBY making losses

The ABC's source said BBY's profitability had deteriorated over the last couple of years, largely due to a decline in the quality of corporate deals it was involved in and because "fixed costs were massive" and there were "way too many analysts".

The company's latest public accounts show a loss of $2.6 million last financial year, due mainly to a large one-off impairment charge, following a $1.5 million loss the previous one.

The source said there were "always a few issues" around the firm's governance and believes that the exchange's drastic actions this week indicate it "must know something within BBY's books is just ugly".

The company has seen the departure of many staff over the past year or so, particularly analysts from its research department.

In early March, BBY announced that its chief executive Arun Maharaj had resigned and would leave by the end of that month.

Mr Maharaj had been with the company for 13 years, previously holding the positions of chief financial officer and head of asset management.

Shadow brokers have provided a steady stream of income for BBY with some placing in excess of $30 million of trades per month.

The brokers are now looking at an extended battle with administrators to try and retrieve what is owing to them.

One shadow broker, who deals only in equities, said its clients' money is completely safe.

However, the situation is far from clear. When Opes Prime collapsed and Tricom came close to failure during the darkest days of the global financial crisis, investors and creditors embarked upon drawn out legal fights for funds as regulators took legal action against some of the principals.

BBY's staff are also in limbo about their future, and the ABC understands that some contractors have not been paid since early April.

http://www.abc.net.au/news/2015-05-19/bby-administration-leaves-brokers-high-and-dry/6481832

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I do find these Snapshots of the Market valuable though so thank you Herc. It definitely is a much more fun and informative thread with all the different Investing paths explored. Day Traders; Long Termers; FA and TA.

I learn the most when Herc goes into more details about what the SNAPSHOT is revealing.

At the same time I am FA all the way.

@heraclitus

What do you make of this news?




Kind Regards