Andy Semple

Merry Christmas and Happy 2013!

The cartoon above was emailed out to all my clients.

This year, in lieu of sending Christmas cards, ANDIKA has made a donation to the Cure for Life Foundation: Accelerating a cure for brain cancer. The Cure for Life Foundation is a national, independent, not-for-profit organisation working for the advancement of the research into brain tumours within Australia.

As some of you will remember, my late father - David, died from a brain tumour on May 10 2005, so I have experienced directly this insidious and debilitating disease.

Not many people know that brain tumors are the most common, life-threatening tumours in children. What’s more, behind Leukemia, they’re the most common of all childhood cancers.

The Cure for life Foundation was established in 2003 by world-renowned neurosurgeon, Dr Charles Teo, to help fund advancements in the treatment of brain cancer, hopefully one day leading to a cure.

For more information please visit http://www.cureforlife.org.au/

I would like to thank you for your continued support in 2012. I hope that you have enjoyed reading my rants and I look forward to ranting with you again in 2013.

May the New Year bring good health and happiness to you and your loved ones.

I’ll be back ranting on January 2 2013.

Now sit back and enjoy the following Christmas videos.

  

 

 

  

 

 

 

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Number’s up for indirect brokers

At last, the MSM is finally taking an interest in the discriminative section 7.7A.12D from the recently legislated Future of Financial Advice reforms.

Via the AFR.

The government is considering a total ban on individual brokers receiving commissions earned from retail investors’ share trades funded through borrowed money, a move that will hit margin lenders such as Commonwealth Bank of Australia and Bendigo and Adelaide Bank.

ANZ Banking Group and Westpac Banking Corp are also amongst the losers as the government plans to reshape the stockbroking industry and decides how to apply bans on so-called conflicted remuneration beyond financial planners.

Details of the new rules are likely to be announced today. Individual brokers at full service firms – those which are members of the ASX and subject to market integrity rules – will be free to earn commissions calculated by reference to the volume and value of their clients’ share trades. But brokers who work at firms which are not members of the ASX (known as indirect brokers) will be forced to move to a “fee for service” remuneration model as is being introduced for financial planners.

Jamie Coote, head of the Australia Securities Dealers Association which represents indirect brokers, said he was disappointed by the decision and said it would push senior advisers back to full-service firms while small indirect brokers would close.

Writing on the wall for the indirect space

“The writing is on the wall for the indirect space as the Stockbrokers Association and the ASX really don’t want the indirect brokers playing a large part in Australia’s financial system,” he said.

ANZ Banking Group’s Etrade business is a major provider of back-office services to indirect brokers and will suffer from any shake-out of the industry.

Westpac is also caught as its brokerage business is an indirect broker rather than a member of the ASX.

Both types of broking firms would be affected by a ban on commissions earned on share trades funded through margin loans, a rule designed to prevent advisers encouraging retail investors to leverage their portfolios.

Full-service stockbrokers had lobbied hard for stricter rules on indirect brokers, who have stolen market share thanks to their ability to undercut on trading fees.

Andy Semple, the managing director of indirect broker Andika, said it will become more expensive for retail investors to get advice.

“Does the government want to go back to the good old days of the ‘80s when brokerage was 3 per cent and brokers could do everything they wanted?” he said. “At the rate this is going that’s where it will end.”

There has been talk that a Coalition government would allow indirect brokers to continue to earn commissions. However, opposition financial services spokesman Mathias Cormann, while saying he backed strong competition in financial markets, yesterday stopped shop of making such a commitment.

“Before making a final judgement, we need to see the detail of what the government is actually proposing around market integrity,” Senator Cormann said.

 

 

 

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Labor Backflips on Promise Made to Non-ASX Participants

AFR journalist, Matthew Drummond, reported on 14^th September 2011 that:

Australia’s indirect brokers will benefit from the same carve-out from the Future of Financial Advice reforms as licensed stockbrokers, despite being subjected to a much lower level of oversight.”

The article (protected by pay wall) when on to say that:

While Mr Shorten is yet to respond, his spokesman told The Financial Review the carve-out from the FOFA ban on commissions would apply to stockbrokers licensed by the Australian Securities Exchange as market participants and to indirect brokers.

“The government is well aware that, in addition to direct ASX market participants, there are ‘indirect’ market participants that also undertake broking services, and will ensure that the provisions apply equivalently to all those providing brokering services,” Mr. Shorten’s spokesman said.

So what made the Minister backflip on his promise that us non-ASX participants would be equally treated?

Maybe it was from the hard lobbying from SAA, led by its Managing Director and CEO, Mr. David Horsfield. Below is the relevant excerpt from the 6^th March 2012 letter sent to Mr. Jim Murphy, Executive Director, Markets Group – The Treasury:

Carve-Outs should only apply to Stockbrokers

It is important to note that in all the published references, the carve-outs are expressed to apply to ‘Stockbrokers’. ‘Stockbroker’ is a restricted term under the Corporations Act. Under section 923B, it is an offence to use unless authorised the expression -

‘…stockbroker or sharebroker, or any other word or expression (whether or not in English) that is of like import to that expression’.

A person must be authorised by its licence or another licensee by ASIC to use the term ‘Stockbroker’. Moreover, ASIC must only authorise Market Participants to use the term.

There are important consequences in dealing with a Stockbroker in term of investor protection. As Stockbrokers, our members are subject to higher levels of regulation under the Market Integrity Rules (MIR) than other licensees who may advise and deal in securities. The Market Integrity Rules contain most of the rules on trading on a licensed market that used to be contained in the ASX Market Rules, including rules on management and supervision (including Responsible Executive Requirements), liquid capital, accreditation, client relationships, record keeping and trading. These are far in excess of the requirements for other licensees under the Act. Moreover, contraventions of the Market Integrity Rules can carry a maximum fine of up to $1m. In our earlier submission of 5 August 2011, we provided details of the added protections to clients under the MIR, including management and supervision requirements, and specific rules against ‘churning’ of clients’ accounts.

Stockbrokers, being Market Participants, should be considered differently to other sectors (like the so called ‘shadow brokers’) who – while they may be licensed or authorised to advise and/or deal in securities - are not Market Participants, and are not subject to the Market Integrity Rules. These shadow brokers are just clients of Market Participants, upon whom they rely to trade.

However, it is a concern that shadow brokers often market themselves as offering the same services as stockbrokers. Therefore, it would be appropriate for the Stockbrokers Carve-Outs to only apply to Stockbrokers, otherwise the problem of misrepresentation of shadow-brokers as stockbrokers may be exacerbated.

Accordingly, we await the detail of the Stockbrokers Carve-Outs with interest.

Finally, as with all the FOFA reforms, it is important that the ban on conflicted remuneration only apply to situations where personal advice is given to retail clients.

Contrary to what Mr. Horsfield states in his letter, firms like ANDIKA are subject to high levels of regulation and scrutiny. For starters AFS License holders like ANDIKA have the SAME AFS License authorisations imposed as an ASX Participant who also advises and deals in securities. ANDIKA is also audited each year as is an ASX Participant is by an independent financial auditing firm. ANDIKA must also conduct an external compliance audit each year to ensure compliance with the relevant sections of the Corporations Act.

As a director (and adviser) of ANDIKA, I must complete at least 20 hours of continued professional education, just as an adviser employed by an ASX Participant would also. ANDIKA also holds each year a valid Professional Indemnity insurance policy and we are members of Financial Ombudsman Service (FOS) – the same Ombudsman Service that all ASX participants are a member of.

The only difference between us and them is we have an intermediary agreement with an ASX participant which allows firms like ANDIKA to facilitate trades of securities and derivatives on behalf of the clients we represent. By default, the Market Integrity Rules (MIR) that Mr. Horsfield mentions in his letter, are applied onto us via our intermediary agreement with the ASX participant.

I also take exception to be labeled as a “Shadow Broker”. ANDIKA is a licensed “Securities and Derivatives Dealer”. It’s just like how the climate change alarmists resort to calling Global Warming sceptics as “deniers”.

“These shadow brokers are just clients of Market Participants, upon whom they rely to trade,” said Mr. Horsfield.

Again Mr.Horsfield is wrong. Firms like ANDIKA rely on their clients and it is the ASX participant that relies on us, as it is firms like ANDIKA that brings our client business to them. What Mr. Horsfield fails to see, is his position will actually hurt the discount ASX participant that his organisation is supposed to represent. Or maybe the SAA is happy to see that end of the ASX participant market get crushed also, leaving the whole pie for the “full service brokers” who occupy Collins Street and Martin Place. Is he reminiscing about the good old days when clients were once charged 3% plus brokerage rates on their buy and sell trades?

People like Mr. Horsfield would rather see firms like ANDIKA actively discriminated against so they can protect their mate’s profits from our competition.  The SAA would rather sabotage firms like ANDIKA than compete fairly against us.  In the end, the real loser will be the Retail client, because if the SAA wins the day, then we’ll be out of business and competition will be significantly reduced. The fat profit days of old will be back for the big end of town.

As the current FOFA laws stand, they are akin to the government legislating that come 1 July 2013, retail customers will only be allowed to buy their bread from the likes of Coles or Woolworths (the big end of town) and the little owner operated bakery will be banned from selling their bread.

It is an absolute disgrace that the Government has reneged on its promise to treat both direct and indirect securities firms equally.  The Hon Bill Shorten MP, Minister for Finance, needs to stand by his promise reported on the 14^th September 2011 and not give into the vested interests of a few elitist multinational ASX participant firms. Should he fail to do so, then the Minister has effectively signed the death warrant himself on 450 perfectly legal independent security advisory firms.

He has also failed to protect the very people these new FOFA laws are supposed to protect.

And who would have thought the Labor Party would get into bed with the big end of town.

Shame on them.

 

You can download a copy of the AFR article here.

You can download a copy of Mr. David Horsfield’s 6th March 2012 letter to Treasury here.

 

Disclosure: I am the sole director of ANDIKA Pty Ltd, AFS License #297069

 

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Labor’s New FOFA Law Actively Discriminates against ASIC Licensed Non-ASX Participants

FOFA is the acronym for the government’s Future of Financial Advice reforms but it might as well stand for “F..k off (non-ASX participant) Financial Advisers.”

Let me explain why the FOFA legislation passed into law last week actively discriminates against ASIC licensed non-ASX participants like my company, ANDIKA Pty Ltd (AFSL# 297069). The relevant section is below:

7.7A.4.12 Conflicted Remuneration—Monetary Benefit

Brokerage fees given to representatives

(6) The monetary benefit is not conflicted remuneration if:

(a) the benefit consists of a percentage, of no more than 100%, of a brokerage fee that is given to a provider who is a participant in a licensed market; and

(b) the provider gives the benefit to a representative of the provider; and

(c) the provider has anti-churning arrangements in place.

The evil part of 7.7A.4.12 (6) (a) is the fact that this legislation WAS amended to specifically discriminate against ASIC licensed non-ASX participants. From the 1^st July 2013, ASX participant firms WILL be allowed to continue to charge their Retail clients brokerage. The same ASIC AFS Licensed non-ASX participants, like ANDIKA (and approximately 450 other small AFS licensed firms), WON’T be able to charge their Retail clients brokerage. The law as it stands actively discriminates against the non-ASX participants.  This provision was inserted late in the proceedings, and the amendments have been made and passed into law without consultation with the non-ASX participant AFS Licence holders.  In my opinion, this will ensure that non-ASX participants will be crushed, and reeks of either malice or outright idiocy.

I have heard anecdotally that the Stockbrokers Association of Australia (SAA), (led by Managing Director and CEO, Mr. David Horsfield), lobbied the Minister and Treasury hard for this amendment (refer to the copy of email below from the SAA that was sent to all member CEO's, Retail Broking Committee, and Retail Compliance Sub-Committee).

I was once a member of the SAA. I was actually contracted by the SAA for several years to conduct their Options and Margin Lending educational workshops in Brisbane.

In 2010 the SAA opened applications for new board members, and I thought that I’d throw my hat in the ring, so I nominated. That was as far as I got.  I was informed by Mr. Horsfield in person that, even though ANDIKA was a fully paid up member, I would not be allowed to nominate, as my company was not an ASX participant. 

Naturally, I was disgusted, as I had been a member of the SAA’s since its inception (when they were known as the Securities and Derivatives Association or SDIA).  I had been under the impression that the SAA was there to actively represent all of its members, not just the ASX participant members. I immediately resigned my membership and made my opinion known to Mr. Horsfield.

The Australasian Securities Dealer Association (ASDA) notes in their 19^th June media release that “approximately 450 firms provide advice and trade in direct equities and options on behalf of around 2.2 million Australian clients that will be directly affected by this legislation.”

This one amendment made in favour of the “top end of town” will have severe consequences, not only for ASIC licensed firms like ANDIKA, but also for millions of Australian “mum and dad” retail investors.

It is the non-participant firms that deal with the small retail client, who from time to time might like to buy or sell a few shares. We also deal with the retail client who is sick of having (often unsolicited) corporate products forced upon them by the large multi-national broking houses. We deal with the retail clients who want real independent advice, not advice that’s in the best interests of the Corporate/Institutional broking arms of the Martin Place wizards. We provide competition to the sector that helps to keep brokerage fees low and equitable, and provides access to professional licensed stockbroking services to the smaller retail investors.  Our existence provides much needed market liquidity to the ASX, which in turn helps to provide a sound and more transparent stock market. We employ thousands of fellow Australians, pay our ASIC Licensing fees, along with our share of corporate taxation.

If this legislation is not amended immediately, a vocal bunch of Collins Street and Martin Place elites will have succeeded in subverting the FOFA legislation to ensure that their ultimate goal of crushing their small business competitors is realised.

You might find yourself asking “why not just join them”, instead of trying to have your voice heard on this legislation, and become an ASX participant.  It’s quite simple, in order to become an ASX participant you must have at least $10 million in surplus capital – I don’t know of any small or medium business enterprises that have that amount of surplus capital laying around.

Section 7.7A.4.12 (6) (a) must be amended to ensure that non-ASX participants are not discriminated against, and I urge the Hon Bill Shorten MP, Minister for Finance, to put an immediate end to this discriminative legislative action.

If the Hon Bill Shorten doesn’t make this amendment, he has effectively signed the death warrant for 450 perfectly viable Australian firms, and put the very people he wants to protect, the small retail “mum and dad” investors, at the mercy of the “big end of town”.

It is also important to remember that the large multinational stockbroking houses played a significant role in the GFC, not the small non-ASX participant Australian security businesses that are being discriminated against with this legislation.

You can read a copy of my letter here, which was sent on the 22^nd June to the Department of Treasury – who have asked for submissions - and was also cc’d to the Hon Bill Shorten MP, Minister for Finance.

You can also read here, the media release from the ASDA, dated 19^th June, 2012.

UPDATE:

Below is a copy of email from Mr. Doug Clark, Policy Executive - Stockbrokers Association of Australia. I received this copy on 21^st  June.

(Emphasis Added)

To All CEO's, Retail Broking Committee, and Retail Compliance Sub-Committee  
 
Dear Member,
 
STOCKBROKERS CARVE-OUTS RELEASED
 
Late yesterday, Treasury released the draft FOFA regulations which give effect to the long-awaited stockbrokers carve-outs.  The draft regulations, available hereinclude measures to:

• exempt ‘stamping fees’ from the ban on conflicted remuneration; and
• exempt employee remuneration for market participants based on a split of brokerage from the ban on conflicted remuneration.  

Importantly, the splitting brokerage carve-out ONLY applies to market participants (subject to anti-churning measures which Treasury flagged to us, and which brokers already have). Limiting this to market participants is recognition of the status of market participant and the additional responsibilities, financial strength and higher standards that come with it.  
 
The argument we put for the stamping fee carve-out was that prohibiting stamping fees would impede capital raisings, especially by small to mid cap companies. Accordingly, the carve-out does not extend to new issues by listed investment companies, since they don't raise capital in the normal sense.
 
Thanks are due to all the members who participated in our lobbying efforts to achieve this, especially those senior members of the Board and Retail Broking Committee who accompanied us to Canberra to meet with Treasury and the Minister.  
 
Treasury is seeking comments on the draft regs by Tuesday 28 June 2012.  While we have been closely involved in the framing of these carve-outs, we will be submitting Members' additional comments by then.  The two FOFA Bills have passed the House of Representatives, and return to the Senate during the sittings 18-28 June, so FOFA appears on track to commence 1 July (with a one year transition) as previously announced.
 
Kind regards,
 
Doug Clark
Policy Executive
Stockbrokers Association of Australia
T: +612 8080 3200
M:+61 (0)417 168804
F: +612 8080 3299
A: Level 6, 56 Pitt Street, Sydney NSW 2000
P: PO Box R1461, Royal Exchange NSW 1225
www.stockbrokers.org.au

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How I made 14.07% in 53 days trading XJO options over the STW ETF

The ANDIKA BULLetin presents short and long term trading opportunities on the ASX.

Here is how I made 14.07% in 53 days trading XJO options over the STW ETF.

On 12^th January 2012, I purchased for my SMSF 600 STW @ $39.13 (XJO @ 4173.6)

I then immediately sold 6 XJO MAR12 4400 calls for 38 points (each point is worth $10)

On 17^th January I then sold the following MAR12 XJO bull put spread:

Sold 6 XJO MAR12 4000 puts for 62 points

Bought 6 XJO MAR12 3700 puts for 22 points (earning a net credit of 40 points).

On 19^th January 2012, I purchased a further 300 STW @ $39.49 (XJO @ 4164.9)

I then immediately sold 3 more XJO MAR12 4400 calls for 36 points.

The following trading day, I sold 3 more of the MAR12 XJO bull put spread:

Sold 3 XJO MAR12 4000 puts for 47 points.

Bought 3 XJO MAR12 3700 puts for 16 points (earning a net credit of 31 points).

On 29^th February 2012, I closed out the 9 XJO MAR12 4000 puts for 5 points.

On 5^th March 2012, I closed out the 9 XJO MAR12 4400 calls for 5 points also.

The total capital employed into the STW after brokerage was $35,713.58

The total XJO Premium received net after brokerage and OCH fees was $5,024.65

The net premium earned represents a return of approximately 14.07%. When annualised it is a mind boggling 96.89%

On 21^st February 2012, I purchased a further 175 STW @ $40.06

The XJO covered combo strategy has now been re-set for the JUN12 XJO expiry.

On 29^th February 2012 I sold the following JUN12 XJO bull put spread:

Sold 10 XJO JUN12 4150 puts for 96 points.

Bought 10 XJO JUN12 3850 puts for 43 points (earning a net credit of 53 points).

On 5^th March 2012, I purchased a further 350 STW @ $40.15. My SMSF now owns 1,425 STW at an average price of $40.025 (I’m using the XJO premium earned to buy more STW, thus compounding my investment).

I then immediately sold 14 XJO JUN12 4500 calls for 54 points (each point is worth $10).

As at COB 6^th March 2012, the STW closed at $39.66 and the XJO closed at 4204.70.

The investment in STW now stands at $57,035.66 compared to the initial starting investment of $35,713.58

Since inception, the total XJO Premium received net after brokerage and OCH fees is $16,485.02

All the option premium has be re-invested into more STW (along with $4,837 coming from super contributions).

Copies of the actual trading contract notes can be provided on request for verification.

Please contact Andy Semple, Managing Director, of ANDIKA on 07 5657 3620 for more information.

S&P's Ratings Report of SPDR S&P/ASX 200 Fund (STW)

Rated Very Strong. Click the link above to download the S&P's detailed product assessment.

 

RISKS

There are two downside risks all investors need to be aware of. 1) Should the S&P/ASX200 index decline in value, this will also result in the STW declining in value.

2) Should the S&P/ASX200 decline in value, the sold XJO JUN12 4150 put option risks becoming in-the-money and the investor is therefore exposed to the cash difference between the strike price of the option and the closing price of the XJO at expiry. However, the downside risk is limited to the difference between the sold strike of 4150 and bought strike of 3850 points – 300 points or $3,000 per contract.

Should the S&P/ASX200 rise in value, the sold XJO JUN12 4500 call option risks becoming in-the-money and the investor is therefore exposed to the cash difference between the strike price of the option and the closing price of the XJO at expiry. However, the ownership of the STW will off-set any risk above 4,500 points.

 

What to learn more?

If you like to learn more about Exchange Trade Options and how they can enhance returns, please visit the ANDIKA Options Made Easy page.

Here you will find informative videos on what options are and how to trade them like a seasoned pro.

You can also download a free copy of my book, Options Made Easy.

Important Information:

This information contains unsolicited general information only, without regard to any individual’s investment objectives, financial situation or needs. It is not specific advice for any particular investor or trader. Investment in the stock market involves risk. 

This document may not take into account your investment objectives or financial situation and you should obtain advice based on your own individual circumstances before making an investment decision.

This document is made available to you by ANDIKA Pty Limited ABN 41 117 403 326, a licensed securities and derivatives dealer.