Govt examining margin lending by bosses

The Rudd government is examining certain sharemarket practices as a result of the volatility in financial markets, such as margin lending by corporate bosses.

Margin lending allows an investor to pay for only part of shares in a company, but is liable to stump up further cash, or sell the shares, if they fall to a certain level - called a margin call.

Corporate Law Minister Senator Nick Sherry told the National Press Club on Wednesday that margin lending played an important role in the market.

"However, following financial market events in early 2008, it has been suggested that there may be significant adverse impact on the market price of a company's shares if a director is required to sell large parcels of shares as a result of a margin call," Senator Sherry said.

"We saw this issue play out in several high profile examples earlier in the year."

The senator has also commissioned the Corporation and Markets Advisory Committee (CAMAC), an independent government agency, to review the "blackout" period when corporate chiefs are not supposed to trade in their company's shares prior to the release of results.

It will also look at the intentional spreading of false corporate and market rumours, otherwise know as "rumourtrage", and the disclosure of price sensitive information at closed company briefings.

"The Rudd government places a premium on a well-functioning and transparent financial market that keeps Australia at the forefront of global best practice," Senator Sherry said.

"The impact of director margin lending and rumourtrage need to be understood and the laws changed if needed."

The government has approved a $100,000 grant to fund the CAMAC investigation and is due to report back by June 20, 2009.