21/01/2009 - 22:00

Brokers preparing for new watchdog rule

21/01/2009 - 22:00

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THE volume of mergers and acquisitions in the stockbroking sector is expected to pick up in 2009 as firms prepare for a new watchdog rule that will come into force later this year.

THE volume of mergers and acquisitions in the stockbroking sector is expected to pick up in 2009 as firms prepare for a new watchdog rule that will come into force later this year.

In the aftermath of the Opes Prime collapse and the Allco Finance Group troubles, the Australian Securities Exchange last year announced that stockbrokers increase minimum capital requirements to $10 million by the end of this year.

The figure is up from $2 million from last year and from $100,000 the year before.

While opinions differ as to whether the new rule will curb potential collapses, most stockbrokers spoken to by WA Business News say the rule will force smaller firms to look to their bigger counterparts to stay afloat.

"Its easy to see a situation where the smaller companies with a smaller balance sheet will struggle to come up with that sort of money and struggle to survive," Bell Potter Securities state manager David Venn said.

A case in point was last month's closure of Perth stockbroking firm Hogan & Partners, which, along with a number of other factors, was unable to meet the 2008 deadline for the $2 million minimum capital requirements.

However, Cunningham Securities managing director Tony Cunningham said there was a way around the rule if firms were prepared to drop their back office, an area that looked after settlements and transactions.

"For smaller firms, to avoid the $10 million, you should close the back office and settle the transaction with someone else, then they're only required to lodge a $500,000 bond," Mr Cunningham said.

While M&As are predicted to dominate this year, the reality is that corporate activity among stockbrokers is not as simple as it looks.

Patersons Securities head of corporate finance Aaron Constantine said a lot of work and resources were necessary to transfer Montagu Stockbrokers' 20,000 clients to its 120,000-client list following the acquisition last month.

The acquisition will be completed in a couple of weeks and while the number of Montagu employees expected to make the transfer has been kept under wraps, WA Business News understands that around half of the 90 employees will be retained.

Also providing another hit to employee numbers is the current economic climate, with several stockbrokers in WA reporting a decrease in employee numbers as a result of lower turnovers following a volatile past six months.

Euroz Securities, which specialises in small to mid-cap WA companies, recently reported an 89 per cent fall in its interim profit, to $1.6 million.

Executive chairman Peter Diamond said the result was good given the firm did not expect to be in the black for this long.

He added Euroz expects to maintain its profitability this financial year, however has forecast a tough next six months with confidence to take some time to turn around.

See Book of Lists, page 16

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