Australia's Corporate regulator, ASIC has flagged a wide ranging plan to improve corporate governance and compliance in a number of areas, including suspected market manipulation, rating agencies' conflicts of interest, and Listed Investment Schemes. At the same time ASIC has flagged it will closely monitor company briefings given to analysts to ensure they do not breach disclosure laws.

All these issues are already covered elsewhere by ASIC, but the announcement will give some much needed focus to areas which in the past have avoided much scrutiny. Although recent market turmoil has resulted in the announcement, the response is both welcome and overdue, particularly the spotlight which will be shone on the role of Credit Rating Agencies and the glaring conflicts of interest which have been allowed to flourish with such disastrous results over the past 12 months.

A slump in new housing loans has added to the case for a reduction in official interest rates when the Reserve Bank of Australia meets again at the beginning of September. Over the first six months of this year the volume of new loans has fallen by 25 per cent, the worst result since 1989. The highest mortgage rates in 12 years have seen the level of home loans fall for five consecutive months, with owner occupied loans down 29.5 per cent and investment loans 32 per cent lower than in June last year.

Commodity prices fell sharply yesterday, dragging high profile resources stocks down with them. Analysts say that investors are deserting the sector as fears grow that the boom is over on the back of news that manufacturing in China contracted during July for the first time since 2005. Oil dropped below $US120 a barrel on Monday night, copper is at its lowest level for the last six months while gold and silver have both fallen to six-week lows. Shares in BHP Billiton fell to their lowest level in four months and Rio Tinto saw its shares fall to their lowest in five months. Also fueling the slide were rumours that a hedge fund had started to liquidate its commodity investments.

The ASX has reported that the number of cash market trades in July hit a new record of 10.2 million, 67 per cent higher than for the same month last year. However the total value of trades in the month was only $126.8 billion which was 11 per cent lower than July 2007, with the average value of each trade dropping to $12,388 compared with $23,132 last year.

The Reserve Bank has chosen to leave interest rates as they are at its August meeting, despite increasing evidence of a significant slowdown in many measurements of economic activity. A statement by the bank's governor, Glenn Stevens, acknowledged that household spending has been subdued over recent months, while business activity has softened and labour market conditions have started to ease. However, the latest Consumer Price Index figures reported so far have done little to diminish the central bank's concerns about inflation, with improving terms of trade adding to national income and spending power. After considering both domestic and international conditions the RBA decided to leave the cash rate unchanged at 7.25 per cent, but indicated that the probability of reducing rates in the months ahead is increasing.

ATTACHED FILESRBA Statement - August 2008 (pdf format)

Veteran of the funds management industry, Ian Macoun, says that fund managers are in for a shakeup following the recent sharemarket volatility. Macoun, managing director of Pinnacle Investment Management, said that both research houses and superannuation funds are reviewing their lists of managed funds to remove poor performers. According to Macoun, Pinnacle has seen increased levels of interest from superannuation funds looking at managers of alternative funds. He expects the number of boutique firms to grow and Pinnacle has been approached by teams at large institutions looking to change company. Macoun expects that private equity will once again become popular as will vehicles that aim to outperform their benchmark, concentrated and quantitative funds.

Minister for superannuation and corporate law, Senator Nick Sherry, has announced ASIC and the Treasury, with the input of the Australian Prudential Regulation Authority (APRA), would review the regulation of CRAs and research houses.

"There have been some very serious concerns voiced to me about the role CRAs may have played in some aspects of recent financial market problems, including the US sub prime mortgage situation, so we need to make sure the system is up to date," said Sherry.

"In relation to research houses, I've requested a review of the appropriateness of the current regulatory framework and whether it might also require updating.

"To ensure we get the full picture, the review will also look at how ratings advice is used by retail and wholesale investors."

The review follows widespread losses for many investors, both private and institutional, who assumed that if a product was endorsed by a major research house it was "safe". AFM also believes that many ratings were slow to be reviewed in the light of the impending problems in the US housing market which should have been evident to professional ratings agencies.

The ASX has received a number of submissions following its request for public consultation on the contentious issue of Short Selling, and in particular the practice of "naked shorts" according to an article in todays Financial Review.

The issue has been a hot potato following recent significant market falls in many stocks, including high profile cases such as Centro Properties, Allco Finance and ABC Learning, which prompted calls from some quarters for all short selling to be outlawed, and resulted in the federal government promising to introduce legislation to at least control or limit the practice.

In particular submissions from the Securities & Derivatives Association, representing stock brokers and investment banks, and Chartered Secretaries Australia, representing governance professionals, have both called for reviews of the rules and activities surrounding short selling.  However, neither submission proposed that short selling should be banned per se, but that the practice overall should be subject to review and greater control - particularly naked short selling (selling shares not owned, and not providing borrowed stock to settle trades) 

Australian Fund Monitors agrees the whole area of short selling should be reviewed and if necessary more fully regulated to recognise the changing nature of the industry and various derivative products which are now used.  However the main issue we believe is transparency - which should also include increased transparency to cover margin lending (as called for by the Institute of Actuaries in their submission to the ASX), which has also been blamed for significant market falls in recent months.