Retail investors being hurt

The opening up of the Australian stock market to global players is hurting retail investors, a leading stockbroker has warned.

“The opening up of the Australian Securities Exchange (ASX) has created a speculative market driven by the need for transactions,” Joseph Palmer and Sons managing partner Malcolm Palmer said.

“Now the ASX is a public company it needs more transactions to satisfy shareholders, so there are more people shorting stocks.”

Palmer said this is creating more volatility in the market, which is hurting smaller retail investors, who will lose faith with the market.

“We have moved away from pricing the company to pricing the stock,” he said.

“Anybody in the world with access to the exchange can see a stock, such as Babcock & Brown, and short it, thereby pushing the price down further.”

Palmer is also critical of the role the ASX has played, arguing it cannot be a regulator and market operator at the same time.

“It might be surprising that one of the stock exchange’s oldest members is calling for a separation of regulation role from the ASX,” he said.

“But we think there has to be a regulatory change if you want to keep investor confidence in the market.

“If retail investors lose confidence in the market they will retire hurt, and I am afraid this will start happening shortly with what they have seen happening this year.”

Joseph Palmer has been a family-owned stockbroker for 135 years and Malcolm Palmer is the fourth generation to run the firm.

The company has evolved into a fund manager running individually managed accounts (IMAs) for more than 200 clients.

Palmer said the days of stockbroking for smaller clients were over with the arrival of Internet share trading.

“We still provide stockbroking for our larger clients, but for smaller clients it is pricing itself out of existence,” he said.

“That is why we have been operating IMAs and turning the company into a fund manager.”

Palmer said clients can pick whatever stocks they wish to put into the IMA and the company discourages gearing.

“Our clients can have a flexible portfolio where the financial planner provides the advice and we undertake the management,” he said.

“As everything is put through CHESS, the client owns the shares and nobody else has beneficial ownership of those shares, unlike the Opes situation.”