Tougher Liquidity Rules Force Small Broker To Close

The Age

Monday September 29, 2008

Eric Johnston, Financial Services Editor

BOUTIQUE Melbourne stockbroker Lands Kirwan Tong will become the first securities house to close since the Australian Securities Exchange detailed a tough stand towards liquidity levels among brokers.

The planned closure of the 20-year-old company marks the start of what is expected to be further upheaval among small-end brokers, with the ASX planning to lift minimum capital requirements to $10million within two years.

Fifteen Lands Kirwin Tong staff - mostly retail advisers - will transfer to mid-sized brokerage Shaw Stockbroking, taking their list of mostly blue-chip clients. Up to 10 Lands Kirwan Tong staff will be made redundant.

Managing director Trevor Lands said the impending rule changes were a key factor behind the decision to close.

"There's going to be some mergers and restructuring as we move through the next 12 to 15 months," he said.

"We've taken a decision earlier, rather than being caught out, which might end up forcing us to make a decision that we really didn't want to make."

In July, the ASX told stockbrokers it planned to increase minimum capital requirements for clearing house participants from $100,000 now to $2 million by the end of this year, with a further increase to $10million by the end of 2009. The move is aimed at minimising risks surrounding stock settlements. But small brokers claim they will struggle to raise funds to meet the capital requirements, forcing them to use third-party clearing houses, such as Merrill Lynch-backed Berndale or Fortis.

While Mr Lands stopped short of blaming the ASX for the closure, he said the additional capital demands were funds that would otherwise be used to improve the business.

Mr Lands said he did not believe it was in his clients' best interests to move to third-party clearing arrangements.

The move comes amid tough times for the stockbroking industry after a steep market downturn has caused revenues to shrink.

Many retail brokers have reported August activity as being the lowest for five years.

Investment group Wilson HTM has become the latest company to cut staff, last week citing "challenging market conditions" behind a decision to make up to 20 positions redundant.

Other stockbrokers, including Tolhurst Group, Austock, and Patersons Securities, have also trimmed staff in recent months.

For Shaw, based in Sydney, the 15 new staff will boost numbers in its Melbourne office to 51.

The company will now have more than 120 client advisers.