Other ASX Research 3

CuDECO SHAREHOLDER RESEARCH
CHAPTER 7:
ISSUES IDENTIFIED BY CUDECO SHAREHOLDER RESEARCH
AS THEY IMPACT OTHER ASX COMPANIES

7.3 A Review of Billabong Trading Based on Iress Broker Data

DISCLAIMER: All Information presented as shareholder research has been sourced from
broker trading records and Cudeco registry records. While the author considers the data
to be accurate and the summaries presented as also being an accurate reflection of
trading, no guarantees are given as to the reliability of data or any conclusions put
forward. Shareholders and investors are encouraged to do their own Due Diligence and to
make up their own minds in regard to any trends present in the trading data.
DISCLAIMER: All information presented as shareholder research has been sourced from
broker trading records, CuDeco registry records and official data as published by the ASX
and ASIC on their respective websites. While the author considers the data and the
summaries presented as being an accurate reflection of trading, no guarantees are given
as to the reliability of information presented. The author provides the information as a
free educational service for those with an interest in the financial markets and requests
that the information contained is used for private use only. No remuneration is involved
in making the research available. It is hoped that the research may assist ASX investors in
becoming more fully informed and in a position to make better judgements about events
that might affect their investments.
Contact Email:
asx.trading.issues@gmail.com
2

REFERENCE LINKS TO PREVIOUS RESEARCH PAPERS

Chapter 1: Introduction
1.1 Why Blog?
1.2 The Current Situation
1.3 Blog Content
Chapter 2: An Overview of Trends Associated With 15 Months of Trading
2.1 Introduction
2.2 Trading Trends Over a 15 Month Period
Chapter 3: Trading Trends Leading up to Aug 18, 2010
3.1 Trading Leading Up to the Aug 18 Resource Upgrade
3.2 An Analysis of Price Under-Performance During Jan-Feb 2010
3.3 Market Manipulation Issues, 7.5 Months of Auction Investigations and Down Tick Analysis
3.4 A Review of June/July 2006 JORC Issues
3.5 Market Reactions to Significant Announcements 2010
3.6 The 2010 Resource Estimate and Issues Related to JORC Code Compliance
Chapter 4: Trading that Occurred Following the Aug 18, 2010 Resource Upgrade
4.1 Historic Trends and Aug 18, 2010 Trading Data
Chapter 5: Trading Updates
5.1 Short Position Update - Nov 1, 2011
5.2 Registry Update as at Nov 3, 2011
5.3 Market Update Nov 14
5.4 Summary of Issues Plus Trading Anomalies During November 2011 and in a Broader Context
Chapter 6: Registry Anomalies
6.1 An Overview of Monthly Registry Anomalies Spanning 2 Years of Trading
6.2 Increased Registry Activity Versus ASX Buying and Selling
6.3 Trading Featuring Substantially Increased Registry Activity Over ASX Activity - Part 2
6.4 Trading Featuring Substantially Increased ASX Activity Over Registry Activity.
6.5 The Impact of Institutions on the CuDeco Register
Chapter 7: Research Into Other ASX Companies
7.1 Research Findings in Relation to CDU, LYC, BBG and EGP
7.2 Further Research Into ASX 200 Companies - Linc Energy (LNC)
7.3 ASX 200 Company Research Billabong Broker Data (BBG)

3

INTRODUCTION

Research Paper 7.3 examines data trends and trading issues in relation to Billabong Corporation as revealed by
Iress broker data. The investigation covers trading from Jan 2010 through to the end of April 2013 during which
the BBG share price has lost 95.7% of its value in falling from $11.00 to $0.475. The previous research into
Billabong (refer Research Paper 7.1 Section 3) looked at issues concerning the Company in the absence of
broker trading data.
The issues raised concerning Billabong have application to trading in all companies across the ASX and suggest
that the entire market is compromised by inadequacies in the current system of regulation. The system seems
to lack both the procedures and the capability to make brokers and their clients fully accountable for their
actions, making Michael Wests article back in Nov 2012 For dark pools, just wade into the ASX disturbingly
accurate.

One of the main outcomes of research into Billabong trading is that market regulation without the capacity to
generate an accurate audit trail of what has taken place, and to make entities fully accountable for their
actions, effectively amounts to non-regulation. In many respects, an unregulated market is what the ASX
appears to have become.

The current Paper further supports many of the issues identified in the executive summary of Research Paper
7.1 as having a major impact on the integrity of the ASX market.
The issues include:
The role that short selling has had in hastening share price declines and leading to undervaluations;
The contradiction between short selling forcing share prices lower but short covering having little or
no impact on share prices, due to covering off-market which avoids price discovery;
The extent of data anomalies associated with official daily data, substantial shareholder disclosures,
and the wide variances in both the quality and usefulness of substantial holder disclosures;
The prevalence of anomalous daily spikes and troughs in open short positions as an indicator of
unorthodox trading behaviours;
The lack of correlation between major changes to open short positions and changes in net borrowing
and net lending data because of unreliable reporting systems and/or non-disclosures;
A reporting system that enables sophisticated investors to conceal their activities with a 4 day delay in
reporting short positions, a 3 day delay in reporting securities lending arrangements and broker trades,
reporting short selling the following day but only after a delay that enables exposures to be managed.
Importantly there is no requirement for reporting short covering, which provides a large amount of
flexibility to fudge exposed positions with off-market adjustments;
The use of managed funds (e.g.; pension fund and mutual funds) for stock lending and the
contradiction represented by fund managers securing relatively small income streams for their clients
from such stock lending, while ensuring substantial devaluations of holdings through the facilitation of
short selling;
The likely collusion by fund managers and institutional brokers and other entities when companies are
targeted corporately in facilitating each others trades and through co-operation in off-market
activities that avoid price discovery;
Severe transparency issues concerning trading and settlements that sit at the heart of spurious trading
and makes market manipulation entirely possible without detection;

4

The vulnerability of all ASX companies because of open ended lending agreements between major
financial entities that can span decades in time, and where because of strategic relationships between
high profile financial entities managing pooled funds, stock can be made available to facilitate any
number of corporate purposes at the expense of clients in managed funds;
Patterns of trading that suggest buying & selling from related accounts or a pass the parcel exercise
between fund managers who are likely to be colluding with their trading. The key to suspicious, non-
genuine trading is that holdings dont change substantially despite extremely large volumes of buying
and selling being put through the market;
The use of media reports as a trigger and a smoke screen to implement aberrant trading behaviours that
force irrational share price fluctuations;
The use of the media to promote trading agendas by the leaking of confidential information, which
when reported, provides both the catalyst and the camouflage for unfair trading behaviours;
A compromised market system where:
o The manipulative use of short selling, back and forth trading churn and extensive use of Dark
Trades and off-market activity have overridden genuine market forces and have led to both
diminished market integrity and undervalued share prices;
o Large amounts of liquidity being withdrawn from the lit market through dark pools, and
extensive off market dealings, and liquidity is also withdrawn at critical times through
algorithms moving non genuine buying out of the way of incoming orders, thus exacerbating
price falls;
o Price discovery associated with short covering is avoided through off-market adjustments;
o Price discovery has increasingly become just a reflection of the trading agendas of powerful
financial interests rather than a fair appraisal of a companys worth based on fundamentals;
o Trading for profits looks to be a secondary consideration compared to forcing undervalued
share prices that prepare the way for large scale corporate activity. Essentially, much more
money can be made by entities through cheap acquisitions whether through placements or by
takeover, than can be stripped from each other through trading. Trading losses in such
instances become a cost of doing business and are likely to be booked to client funds under
management;
o The style of trading undertaken generally represents a zero sum game with powerful interests
overwhelming the market through weight of numbers while achieving their pricing agendas;
o For firms that are targeted corporately, positive news about company achievements virtually
becomes irrelevant because of trading designed to quickly override any lift from good news.
Yet negative news or perceived negative news is seized upon to implement share price falls
through short selling and through collusive trades where control over stock is maintained
despite the falls in price.
Data-based insights into BBG trading based on IRESS broker data reveal a fundamental contradiction within
our investment market. On the one hand, our system is meant to provide a medium for fair exchange of
securities between genuine sellers and genuine buyers, and to provide companies with access to capital to
grow their businesses, thereby generating wealth and employment that should strengthen the economy.

On the other hand, the system allows, and in some cases facilitates, substantial shareholder status to
management entities who repeatedly borrow and short-sell large tranches of shares with a focus on
destroying value in those targeted companies for their own ends.

This contradiction means that share investing for some of the most influential players in the market can be
predicated by the destruction of wealth and trying to ensure that the share prices of targeted companies are
kept as low as possible. Efficient market theory would argue that others would step in to take advantage of
5

cheap prices but if entities are colluding, or simply standing aside knowing there will be other opportunities
for them to benefit, then companies become extremely vulnerable and the system itself is placed at extreme
risk.
The system of stock lending and short selling receives support from Treasury, the ASX, ASIC and the
establishment press with arguments mainly centering on the liquidity it is meant to provide. However apart
from the fact that liquidity is elusive, particularly when it is really needed such as during times of financial
crisis, the system of short selling raises questions that suggest it is fundamentally flawed in the way it
operates.
The questions arising from research into ASX200 companies which have been stripped of considerable wealth
over the last several years include:
1. Who acting in good faith and with full knowledge of the risks entered into would allow their shares to
be borrowed to facilitate the massive devaluation of a company they are significantly invested in?
2. What responsible fund manager conscious of the need to perform against his/her peers while
entrusted to increase the investment portfolio of clients, would facilitate short selling through the
lending of client shares knowing that client portfolios would be substantially devalued by the activity?
3. Who would actively assist entities to cover large short exposures in such a way as to avoid any price
impact when short sellers under pressure to cover would be expected to pay a premium to access
large tranches of shares?
4. Has extensive stock lending created a situation where the focus by influential entities is to destroy
value and to ensure that prices remain under pressure to manage exposures and to minimize the need
for supplying additional collateral in the event of price increases?
5. How can market integrity be maintained for an industry that effects the financial welfare of so many
people through compulsory superannuation when vested interests choosing to put their own interests
ahead of the clients whose funds they manage;
6. Given the massive losses faced by superannuation funds in recent years and in the years following the
GFC, who are the entities who have positioned themselves to benefit from the massive amounts of
short selling that has occurred and where have those profits been repatriated to?

It is difficult if not impossible to successfully answer questions such as the above without getting into issues of
collusion, collaboration and share price manipulation which were also addressed1 In Research Paper 7.1 from
the point of view of historical precedent. The fact that people do participate in a financially treacherous
environment with trust that their funds will be managed professionally and their best interest highlights the
misinformation associated with the funds management industry where client risks are in a form not able to be
fully understood.

Importantly, many of the trading houses that are prominent throughout the research have track histories of
share price manipulation and abuses of the financial markets and have incurred heavy fines but always with
no admission of guilt. It raises the question, Why pay fines for something for which you are not guilty of?

A system that tolerates such convenient remedies for situations where clear wrong doing has taken place
simply guarantees that manipulative abuses will continue with perhaps increased care to ensure that any
aberrant activities are even more difficult to detect in future.

1
Refer Paper 7.1, Section 7.1.3.15.1 Regarding possible collusion by fund managers, brokers and their affiliates
6

EXECUTIVE SUMMARY
The focus of Research Paper 7.3 has been to assess broker trading in response to the news events that have
accompanied share price falls in Billabong Corporation (BBG). The purpose for doing so is to demonstrate that
trading issues raised by research into CuDeco Limited are not only valid, but they are replicated in trading
across the ASX 200 and even further afield as well.
The Paper draws attention to possible insider activity associated with Billabong trading in relation to:
A major capital raising where broker trading and shorting activity may be suggesting unfair dealings and
a compromised market, and;
The leaking of confidential information to the media and the implementation of dubious trading
strategies under the cover of negative news. Denials by the Billabong Board contributed to a grossly
uninformed market especially as the media reports eventually proved to be correct.
The focus of research has not been on share price levels which should reflect the emerging fundamentals of
the company. Based on earnings and future prospects 45 cents may (or may not) be a reasonable price for
BBG. However, of particular concern is the likelihood that manipulative and unfair trading practices have
accompanied share price declines and have continuously advantaged one class of investors over another.
Research into trading data has focussed attention on the activities of fund managers (and/or custodians) in
making shares available for short selling from the holdings they have management rights to, especially when
the fees earned for clients have been minor compared to the massive portfolio losses managers have
facilitated through short selling. The practice has persisted for at least 5 years during which time the share
price has retreated from around $13.70 to its current $0.45.
The situation makes no logical sense within a fund management industry that has little tolerance for under
performance. Substantial shareholder notices have shown portfolios under management often consist of
mutual fund and pension fund portfolios, suggesting that the investments of individuals who lodge money to
invest in good faith have been used by sophisticated investors to extract profits from the market at the
expense of fund holders. Such a system could only work if there was a benefit for managers in making the
funds available and that raises the spectre of collusion. Collusion is suggested by:
The making of funds available for short selling when both the lender and the borrower represent the
sophisticated sector of the market with access to quality information and more than likely a shared view
about the future direction of the BBG share price a view based on company fundamentals and possibly
by inside knowledge of corporate activity;
The facilitation of short covering without price impact;
The constant shuffling of shares back between sophisticated investors while prices are taken lower;
The facilitation of trading agendas whereby trading churn is put through a number of brokers to
condition the market and to camouflage attempts to acquire or dispose large tranches of shares.

Trading data demonstrates that the market has become seriously impaired through entities regularly
becoming substantial shareholders through the borrowing of shares rather than through purchases. The use of
other peoples shares in becoming a major shareholder with the sole intention of profiting by the destruction
of productive wealth is a bizarre take on investing that is sanctioned by our current system but the practice
has placed the market in an untenable and chronically dysfunctional position.
The other feature of Billabong trading is the manipulative abuses associated with various offers for the
company that are never actually consummated. The strategy has been described by Minter Ellison as Bear
Hugs or Virtual Bids where a bidder pressures a target to accept a takeover proposal by making the proposal
on an indicative, non-binding and highly conditional basis. The wriggle room made available by such an offer
can then used to pressure the company and as highlighted by Billabong, with devastating effect.
The share flows associated with NAB, JP Morgan and UBS as Billabong substantial shareholders, highlight
the extent of unorthodox trading activity associated with securities lending. The charts that follow contrast
share flows associated with securities lending against share flows associated with buying and selling activity
as disclosed in substantial notices. Total movements ON and OFF the register resulting from securities
lending activity are compared to totals for buying and selling.

7

Securities Lending versus Buying & Selling for Billabong Substantial Shareholders

The data suggests motives for trading that are likely to have significant ramifications for the integrity and
fairness of the market for other participants as it has become known that if entities require lower prices to
suit a trading agenda there a number of ways whereby lower prices can be achieved. (Refer Section 7.3.1.6)
The substantial notices also highlight the likely extent of trading imbalances given that the majority of trading
occurs without any disclosures whatsoever simply because the mandatory 5% substantial shareholder
reporting disclosures are not triggered. JP Morgan and UBS havent issued many substantial shareholder
notices over the last 3 years and yet the trading in the market corresponding to the above charts, as well at
other times, reveals large quantities of buying and selling about which little or nothing is known.

JPM

UBS
Re: Above Charts Sells Buys

Sells Buys
Affiliate Activity 127,245 411,125

1,101,069 357,831
Broker Activity 1,819,056 2,174,685

23,505,701 17,603,002
All Broker Trading
3 Year Period
(2010, 2011 & 2012)
84,187,051 79,794,249

217,120,649 214,899,183

Period 2010, 2011 & 2012

NAB AFFILIATES
Period Dec 31 12 to Apr 30 13

JP MORGAN AFFILIATES

Period Aug 8, 2011 to Dec 5, 2011

UBS AFFILIATES
3 Months OFF ON
ASX Activity 127,245 411,125
Securities Lending 35,800 17,690,200

4 Months OFF ON
ASX Activity 1,101,069 357,831
Securities Lending 29,180,434 30,038,528

Share flows associated
with securities lending
3 Months OFF ON
ASX Activity 15,738,269 17,729,786
Securities Lending 197,872,630 198,774,745

Share flows from
Buying & Selling
92.2% 97.1%
97.6%
When combined with the trading of other brokers
over the last 3 years, that has also passed
beneathe the 5% reporting limit, it shows that
very little is known about the trading taking place
with no way of finding out other than through
audits. Any attempts to regulate the market are
clearly taking place blindfolded because of the
opaque systems that are allowed to enshroud
practically all dealings by sophisticated investors.
Finally, the incessant algorithmic trading churn that is a feature of trading has translated into a group of
institutional brokers dominating trading but with their roles reversed from time to time. Interestingly, despite
continuous falls in the share price, institutional ownership as a group has remained at relatively constant
levels with a lot of the trading likely to be associated with minimal changes to beneficial ownership. Much of
the trading therefore appears non-genuine with collusion and cooperation likely in support of shared trading
objectives. For example, short selling and short covering looks to have been a cooperative effort and pushing
prices to undervalued levels may have been a cooperative strategy as well in support of takeover activity.
The use of retail brokers to disguise buying or selling during critical trading periods gives strong support to
views of collaboration and such activity ought to be relatively easy to verify from audits. While data trends
and trading anomalies suggest manipulation, identifying those responsible would require the relationships of
entities and brokers who have dominated trading to be fully understood, and that comes back to a
preparedness to carry out much needed regulatory audits. The results could be very revealing and sadly, the
current avoidance of that approach by regulators might be signalling that they would rather not know.

Broker Activity versus Affiliate Buying & Selling for JPM & UBS
The majority of trading takes place undisclosed
and is virtually invisible on the register
8

CONTENTS

Section 1 ......Pg. 9
A REVIEW OF BILLABONG CORPORATION BROKER DATA
7.3.1.1 AN OVERVIEW OF TRADING IN BILLABONG CORPORATION Pg.10
7.3.1.2 PROMINENT BROKERS ASSOCIATED WITH DOWN TRENDS Pg. 11
7.3.1.3 SUMMARY OF BROKER DATA Pg. 14
7.3.1.4 TIMELINE OF SIGNIFICANT EVENTS: Pg. 18
7.3.1.5 THE BBG SHARE PRICE CORRESPONDING TO SIGNIFICANT EVENTS: Pg. 19
7.3.1.6 SHARE PRICE MANIPULATION ISSUES Pg. 20
7.3.1.7 TRADING ACCOMPANYING SIGNIFICANT EVENTS Pg. 21

Section 2 ........... Pg. 61
SHORT SELLING TRENDS REVISITED

7.3.2.1 OPEN SHORT POSITIONS 2013 Pg. 62
7.3.2.2 FURTHER ANOMALOUS OPEN SHORT ACTIVITY Pg. 63

Section 3 . ...Pg. 64
BROKER DATA ACCOMPANYING SUBSTANTIAL SHAREHOLDER NOTICES

7.3.3.1 JP MORGAN SUBSTANTIAL NOTICE MAY 2013 Pg. 65
7.3.3.2 NAB SUBSTANTIAL SHAREHOLDER DISCLOSURES Pg. 66
7.3.3.3 UBS SUBSTANTIAL SHAREHOLDER DISCLOSURES Pg. 67
7.3.3.4 MACQUARIE GROUP SUBSTANTIAL SHAREHOLDER DISCLOSURES Pg. 68

Appendix . ...Pg. 69
QUESTIONS CONCERNING BILLABONG TRADING

9

Section 7.3.1
A REVIEW OF BILLABONG CORPORATION BROKER DATA
(ASX CODE: BBG)
Period: Jan 2010 Apr 2013
10

7.3.1.1 BILLABONG CORPORATION (BBG) An Overview of Trading
The chart tracks the Billabong share price from the beginning of January 2010 through to the end of April
2013, a period that encompasses 13 quarters of trading where the price has retreated from a high of $12 to a
low of 47 cents.

To tie in with previous research on Lynas Corporation, open short position movements are again compared to
share price trends below. Official open short positions have been available only since June 16, 2010 although
research has demonstrated that open short position data is generally an unreliable indicator of market activity
due to extensive off-market dealings concerning securities lending. The covering of short positions rarely
results in price increases as it is accomplished cooperatively between stakeholders and usually takes place off-
market. It could be argued that depressing share prices through short selling on-market and then covering off-
market provides a legal pathway for share price manipulation.

0
10
20
30
40
50
M
i
l
l
i
o
n
s

June 16, 2010
2010 2011 2012 2013
Open Short
Positions
Share Price
The long term decrease in the share
price has generally coincided with an
increase in open short positions
Commnencement of Open Short Position reporting
Trading over 3.25 years has seen 2.154 Billion shares bought
and sold while the share price has lost 96% of its value. And
yet Annual Reports show that institutional shareholders, who
have mainly been responsible for the trading volumes, have
retained their holdings as a group with their ownership
averaging 63% of the register up until the 2012 Report.
$12
$2
$8
$6
$10
$4
2011 2012 2010 2013
11

7.3.1.2 PROMINENT BROKERS ASSOCIATED WITH DOWN TRENDS
In an attempt to identify who the prominent brokers have been in the trading of Billabong Corporation shares,
several downtrend periods have been identified on the chart and broker statistics corresponding to each
trend have been sourced from IRESS data. The results follow.

PERIOD 1: A down trending BBG share price from around Apr 12, 2010 through to Aug 20, 2010
LEADING BROKERS BY MARKET SHARE LEADING BROKERS BY NET BUYING & NET SELLING
BROKER SELLS BUYS NET SHARE % BROKER SELLS BUYS NET BUYS NET %
GS 14,954,878 11,820,195 -3,134,683 12.2% MACQ 10,703,331 14,387,987 3,684,656 37.6%
UBS 13,113,894 13,783,151 669,257 12.1% DMG 10,646,509 13,402,793 2,756,284 28.2%
MACQ 10,703,331 14,387,987 3,684,656 12.0% MERL 1,241,882 2,449,920 1,208,038 12.3%
DMG 10,646,509 13,402,793 2,756,284 10.7% UBS 13,113,894 13,783,151 669,257 6.8%
CITI 10,520,097 9,834,198 -685,899 9.4% COMM 1,833,118 2,222,581 389,463 4.0%
CIMB 8,748,826 8,732,482 -16,344 8.2% ITG 288,171 620,059 331,888 3.4%
CSUI 8,028,627 7,310,811 -717,816 7.3% MOELIS 0 290,000 290,000 3.0%
MSDW 7,847,056 7,316,612 -530,444 7.0% PSL 25,982 154,043 128,061 1.3%
JPM 6,005,706 5,728,559 -277,147 5.1% DAIW 321,534 441,091 119,557 1.2%
SUSQ 2,983,210 3,005,823 22,613 2.8% Others 2 5,800,689 6,010,401 209,712 2.1%
COMM 1,833,118 2,222,581 389,463 1.8%
MERL 1,241,882 2,449,920 1,208,038 1.7% Total 9,786,916
INST 1,483,841 1,470,630 -13,211 1.3% NET SELLS
EVAN 1,982,130 172,912 -1,809,218 1.0% GS 14,954,878 11,820,195 -3,134,683 32.0%
IMCP 968,947 987,665 18,718 0.9% EVAN 1,982,130 172,912 -1,809,218 18.5%
ETRD 858,968 842,640 -16,328 0.8% TAYL 872,428 33,848 -838,580 8.6%
CLSA 667,398 586,673 -80,725 0.6% CSUI 8,028,627 7,310,811 -717,816 7.3%
AIEX 656,539 632,218 -24,321 0.6% CITI 10,520,097 9,834,198 -685,899 7.0%
BBY 596,375 599,093 2,718 0.5% MSDW 7,847,056 7,316,612 -530,444 5.4%
NAL 439,624 457,101 17,477 0.4% MACP 559,194 124,898 -434,296 4.4%
ITG 288,171 620,059 331,888 0.4% JPM 6,005,706 5,728,559 -277,147 2.8%
TAYL 872,428 33,848 -838,580 0.4% SHAW 234,210 16,220 -217,990 2.2%
Others 1 3,689,390 2,732,994 -956,396 2.9% ORDS 202,053 32,085 -169,968 1.7%
Others 3 13,949,456 12,978,581 -970,875 9.9%
Totals 109,130,945 109,130,945 0 100% Total -9,786,916

Period 1
Period 2
Period 3
Period 4
Period 5
Share Price
Note: Others 1, refers to all brokers other than the leading brokers by market share that have been listed
Others 2, refers to all brokers that show net buying other than those listed as leading net buyers
Others 3, refers to all brokers that show net selling other than those listed as leading net sellers
12

PERIOD 2: A down trending BBG share price from around Nov 1, 2010 through to Aug 31, 2011
CITI 51,573,003 60,085,548 8,512,545 16.3% CITI 51,573,003 60,085,548 8,512,545 40.7%
GS 48,213,527 45,914,219 -2,299,308 13.0% MACQ 23,393,895 27,735,489 4,341,594 20.8%
UBS 42,070,934 39,319,180 -2,751,754 11.7% ITG 1,802,351 3,705,415 1,903,064 9.1%
DMG 35,888,353 34,599,898 -1,288,455 9.9% INST 5,452,161 6,825,157 1,372,996 6.6%
MACQ 23,393,895 27,735,489 4,341,594 7.5% CSUI 23,479,068 24,663,126 1,184,058 5.7%
CSUI 23,479,068 24,663,126 1,184,058 7.1% AUST 145,478 799,825 654,347 3.1%
MSDW 20,799,499 21,410,282 610,783 5.3% MSDW 20,799,499 21,410,282 610,783 2.9%
NAL 16,671,409 13,218,162 -3,453,247 4.1% MOELIS 120,000 711,055 591,055 2.8%
JPM 13,042,342 11,870,653 -1,171,689 3.9% MFGBL 184,095 714,876 530,781 2.5%
CIMB 11,151,170 11,120,948 -30,222 3.8% Other 13,724,485 14,944,877 1,220,392 5.8%
MERL 12,137,831 9,505,113 -2,632,718 3.3%
COMM 9,630,180 9,565,721 -64,459 2.6% Total 20,921,615
SUSQ 7,018,935 7,021,729 2,794 2.1% Net Selling
INST 5,452,161 6,825,157 1,372,996 1.7% NAL 16,671,409 13,218,162 -3,453,247 16.5%
ITG 1,802,351 3,705,415 1,903,064 0.8% DAIW 3,647,270 683,439 -2,963,831 14.2%
BBY 2,546,940 2,617,759 70,819 0.7% UBS 42,070,934 39,319,180 -2,751,754 13.2%
AIEX 2,500,812 2,385,884 -114,928 0.7% MERL 12,137,831 9,505,113 -2,632,718 12.6%
ETRD 2,263,135 2,414,379 151,244 0.6% GS 48,213,527 45,914,219 -2,299,308 11.0%
CLSA 2,328,444 1,879,647 -448,797 0.6% DMG 35,888,353 34,599,898 -1,288,455 6.2%
DAIW 3,647,270 683,439 -2,963,831 0.6% JPM 13,042,342 11,870,653 -1,171,689 5.6%
MACP 1,786,235 1,562,100 -224,135 0.5% EVAN 1,338,251 302,397 -1,035,854 5.0%
RBSM 1,955,751 1,428,576 -527,175 0.4% NDAL 643,558 5,008 -638,550 3.1%
Others 11,603,603 11,424,424 -179,179 2.9% RBSM 1,955,751 1,428,576 -527,175 2.5%
Other 34,673,587 32,514,553 -2,159,034 10.3%
Totals 350,956,848 350,956,848 0 100% Total -20,921,615

PERIOD 3: A down trending BBG share price from around Oct 24, 2011 through to Dec 24, 2011
CITI 25,585,522 26,691,802 1,106,280 15.1% COMM 17,691,686 24,631,403 6,939,717 27.0%
DMG 22,557,107 22,788,276 231,169 12.4% ORDS 580,949 3,717,800 3,136,851 12.2%
MSDW 19,174,337 12,467,211 -6,707,126 8.1% MACQ 13,371,030 16,342,374 2,971,344 11.6%
MACQ 13,371,030 16,342,374 2,971,344 8.1% AIEX 2,686,530 4,645,977 1,959,447 7.6%
COMM 17,691,686 24,631,403 6,939,717 7.8% ETRD 2,816,399 4,488,320 1,671,921 6.5%
CSUI 23,512,098 13,172,638 -10,339,460 7.7% MACP 1,635,073 2,944,439 1,309,366 5.1%
UBS 13,769,321 13,995,145 225,824 7.2% CITI 25,585,522 26,691,802 1,106,280 4.3%
GS 15,599,751 15,422,341 -177,410 6.9% CIMB 2,575,290 3,382,376 807,086 3.1%
MERL 7,376,039 7,986,990 610,951 4.2% SBAR 216,447 894,022 677,575 2.6%
JPM 6,189,096 1,979,071 -4,210,025 2.0% Other 65,548,128 70,684,214 5,136,086 20.0%
INST 2,889,876 2,895,604 5,728 1.7%
CIMB 2,575,290 3,382,376 807,086 1.7% 25,715,673
BBY 3,408,888 4,005,503 596,615 1.7%
SUSQ 2,719,933 2,898,859 178,926 1.6% CSUI 23,512,098 13,172,638 -10,339,460 40.2%
AIEX 2,686,530 4,645,977 1,959,447 1.4% MSDW 19,174,337 12,467,211 -6,707,126 26.1%
ETRD 2,816,399 4,488,320 1,671,921 1.3% JPM 6,189,096 1,979,071 -4,210,025 16.4%
ITG 3,426,630 1,109,941 -2,316,689 1.1% ITG 3,426,630 1,109,941 -2,316,689 9.0%
MACP 1,635,073 2,944,439 1,309,366 0.9% DAIW 1,083,000 25,000 -1,058,000 4.1%
SOSL 2,522,072 2,721,381 199,309 0.9% RBSM 856,519 557,014 -299,505 1.2%
ORDS 580,949 3,717,800 3,136,851 0.9% PETRA 271,062 21,062 -250,000 1.0%
HUB24 2,584,615 2,452,615 -132,000 0.8% GS 15,599,751 15,422,341 -177,410 0.7%
NAL 1,281,106 1,340,083 58,977 0.8% HUB24 2,584,615 2,452,615 -132,000 0.5%
Others 12,048,706 13,921,905 1,873,199 5.8% SHAW 211,551 91,954 -119,597 0.5%
Other 386,341 280,480 -105,861 0.4%
Totals 206,002,054 206,002,054 0 100% Total -25,715,673

13

PERIOD 4: A down trending BBG share price from March 1, 2012 to Jun 30, 2013
GS 28,480,063 30,804,010 2,323,947 13.7% ORDS 1,064,960 9,515,000 8,450,040 25.8%
UBS 19,535,069 21,868,594 2,333,525 10.8% COMM 16,025,081 22,499,918 6,474,837 19.8%
CITI 14,449,455 13,470,782 -978,673 7.7% ETRD 3,821,812 6,591,428 2,769,616 8.5%
COMM 16,025,081 22,499,918 6,474,837 7.5% UBS 19,535,069 21,868,594 2,333,525 7.1%
MACQ 14,095,150 13,193,618 -901,532 6.8% GS 28,480,063 30,804,010 2,323,947 7.1%
CSUI 14,787,234 9,605,237 -5,181,997 6.5% AIEX 3,675,670 5,562,856 1,887,186 5.8%
DMG 16,405,774 7,060,536 -9,345,238 5.9% BELL 3,212,647 4,914,665 1,702,018 5.2%
MSDW 7,207,731 6,064,783 -1,142,948 4.1% JPM 5,070,023 6,540,312 1,470,289 4.5%
JPM 5,070,023 6,540,312 1,470,289 3.8% CCZ 32,917 760,000 727,083 2.2%
ORDS 1,064,960 9,515,000 8,450,040 3.3% Other 10,769,475 15,404,144 4,634,669 14.1%
MERL 7,413,673 4,647,923 -2,765,750 2.8%
BBY 5,484,470 5,326,320 -158,150 2.7% 32,773,210
BELL 3,212,647 4,914,665 1,702,018 2.6%
CIMB 7,201,414 2,680,452 -4,520,962 1.8% DMG 16,405,774 7,060,536 -9,345,238 28.5%
AIEX 3,675,670 5,562,856 1,887,186 1.8% CLSA 4,585,102 605,173 -3,979,929 12.1%
ETRD 3,821,812 6,591,428 2,769,616 1.8% CSUI 14,787,234 9,605,237 -5,181,997 15.8%
CLSA 4,585,102 605,173 -3,979,929 1.7% CITI 14,449,455 13,470,782 -978,673 3.0%
NAL 2,808,297 3,040,414 232,117 1.7% MERL 7,413,673 4,647,923 -2,765,750 8.4%
TPPM 2,692,096 2,682,023 -10,073 1.4% CIMB 7,201,414 2,680,452 -4,520,962 13.8%
SUSQ 2,760,845 2,867,437 106,592 1.4% BTIG 1,819,575 861,174 -958,401 2.9%
ITG 1,941,393 1,730,759 -210,634 1.0% MACQ 14,095,150 13,193,618 -901,532 2.8%
BTIG 1,819,575 861,174 -958,401 0.9% MOELIS 877,700 100,089 -777,611 2.4%
Others 18,141,180 20,545,300 2,404,120 8.3% INST 2,349,085 1,516,183 -832,902 2.5%
Other 27,006,835 24,476,620 -2,530,215 7.7%
Totals 202,678,714 202,678,714 0 100% Total -32,773,210

PERIOD 5: A down trending BBG share price from Aug 1, 2012 to Apr 30, 2013
UBS 98,276,918 81,429,403 -16,847,515 11.98% COMM 76,869,618 94,419,007 17,549,389 24.7%
COMM 76,869,618 94,419,007 17,549,389 11.50% CSUI 23,545,757 37,085,365 13,539,608 19.0%
CITI 77,935,701 71,146,862 -6,788,839 10.40% BELL 5,766,353 12,485,129 6,718,776 9.4%
MSDW 52,967,801 39,533,919 -13,433,882 7.45% ETRD 24,329,361 30,294,443 5,965,082 8.4%
DMG 43,756,636 48,799,422 5,042,786 6.49% AIEX 11,744,519 16,859,773 5,115,254 7.2%
JPM 39,107,055 39,521,896 414,841 6.41% DMG 43,756,636 48,799,422 5,042,786 7.1%
GS 46,829,463 38,069,757 -8,759,706 6.24% NATO 4,749,965 8,766,014 4,016,049 5.6%
MACQ 35,436,929 33,571,824 -1,865,105 4.93% PETRA 1,600,000 5,005,000 3,405,000 4.8%
CSUI 23,545,757 37,085,365 13,539,608 4.33% TIMR 2,599,225 5,683,177 3,083,952 4.3%
ETRD 24,329,361 30,294,443 5,965,082 3.75% Other 73,219,910 79,961,596 6,741,686 9.5%
SOSL 19,185,247 18,521,513 -663,734 2.46%
MERL 17,565,804 11,595,150 -5,970,654 2.39%

Totals 71,177,582

BBY 17,964,088 15,143,359 -2,820,729 2.25% Net Selling
AIEX 11,744,519 16,859,773 5,115,254 1.95% UBS 98,276,918 81,429,403 -16,847,515 23.7%
SUSQ 13,798,620 13,441,619 -357,001 1.91% MSDW 52,967,801 39,533,919 -13,433,882 18.9%
MACP 8,697,349 10,502,263 1,804,914 1.33% GS 46,829,463 38,069,757 -8,759,706 12.3%
BELL 5,766,353 12,485,129 6,718,776 1.29% CITI 77,935,701 71,146,862 -6,788,839 9.5%
VIRT 8,760,871 7,181,438 -1,579,433 1.09% MERL 17,565,804 11,595,150 -5,970,654 8.4%
ITG 5,790,602 6,147,515 356,913 0.88% CIMB 4,021,857 760,148 -3,261,709 4.6%
INST 5,723,426 6,970,342 1,246,916 0.86% BBY 17,964,088 15,143,359 -2,820,729 4.0%
NATO 4,749,965 8,766,014 4,016,049 0.83% MACQ 35,436,929 33,571,824 -1,865,105 2.6%
TPPM 5,019,538 5,546,000 526,462 0.83% ORDS 5,054,101 3,378,869 -1,675,232 2.4%
Others 61,555,147 58,344,755 -3,210,392 8.45% VIRT 8,760,871 7,181,438 -1,579,433 2.2%
Other 72,381,891 64,207,113 -8,174,778 11.5%
Totals 705,376,768 705,376,768 0 100% Totals -71,177,582

14

7.3.1.3 SUMMARY OF BROKER DATA.
The trading data reveals a number of brokers who have been prominent with their trading throughout all
periods. They are summarized below with their market shares across all 5 periods itemized and with their
average market share across all trading also listed. The prominent brokers by market share for each period
have also been highlighted.
Period CITI UBS GS DMG MACQ CSUI COMM MSDW JPM
1 9.4% 12.1% 12.2% 10.7% 12.0% 7.3% 1.8% 7.0% 5.1%
2 16.3% 11.7% 13.0% 9.9% 7.5% 7.1% 2.6% 5.3% 3.9%
3 15.1% 7.2% 6.9% 12.4% 8.1% 7.7% 7.8% 8.1% 2.0%
4 7.7% 10.8% 13.7% 5.9% 6.8% 6.5% 7.5% 4.1% 3.8%
5 10.4% 12.0% 6.2% 6.5% 4.9% 4.3% 11.5% 7.5% 6.4%
Average 11.8% 10.8% 10.4% 9.1% 7.9% 6.6% 6.2% 6.4% 4.2%

Broker data by itself doesnt convey much about the entities who have dominated trading as their buying and
selling is likely to be spread across a range of brokers. Moreover, while a substantial amount of broker trading
shows buying matched more or less by selling, the reality is that brokers are generally buying for some entities
while selling for others making it difficult to assess their impact on the market.
A prominent market share by one or more brokers has often provided a foil for other brokers to come in and
be leading net buyers or net sellers of stock even though their market shares have been relatively minor. Also,
there is no guarantee that the entities responsible for net sales havent actually re-purchased the shares
through other brokers, and similarly, there are no guarantees that entities responsible for net purchases
havent actually sold a similar number of shares through other brokers. The monitoring of such trading activity
is extremely difficult because of the netting of trades and the concealment of broker identities through the
settlement and registration of trades when it comes to institutional dealings. Complicating the issue further is
the camouflage offered to entities responsible for trades but who happen to operate within the nominee
structure of an institutional account or even worse, through the nominee accounts of multiple institutions.
The leading net buyers and the leading net sellers across the 5 periods of trading are summarized below.
Brokers who have been influential as a net buyer or as a net seller but who have had only a minor market
share of all trading are highlighted. The NET % column shows the proportion of net selling or net buying the
broker has been responsible for during the period.
For example, during Period 2, Citigroup with an overall market share of 16.3% (refer above) were responsible
for 40.7% of all net buying that took place. It reveals a very major influence over trading particularly as CITI
has been a consistent buyer over an extended period in a falling market. The real issue however in terms of
being able to reconcile trading and being able to judge whether trading was fair and reasonable, is to be able
to identify who the sellers were and what relationship they had, if any, with the Citigroup client or clients who
accumulated the shares. An absence of changes to beneficial ownership would ring alarm bells and it is the
sort of regulatory issue that only audits could clarify.
Period Broker Sells Buys Net Net %

2 CITI 51,573,003 60,085,548 8,512,545 40.7%

3 CSUI 23,512,098 13,172,638 -10,339,460 40.2%
1 MACQ 10,703,331 14,387,987 3,684,656 37.6%

1 GS 14,954,878 11,820,195 -3,134,683 32.%
1 DMG 10,646,509 13,402,793 2,756,284 28.2%

4 DMG 16,405,774 7,060,536 -9,345,238 28.5%
3 COMM 17,691,686 24,631,403 6,939,717 27.%

3 MSDW 19,174,337 12,467,211 -6,707,126 26.1%
4 ORDS 1,064,960 9,515,000 8,450,040 25.8%

5 UBS 98,276,918 81,429,403 -16,847,515 23.7%
5 COMM 76,869,618 94,419,007 17,549,389 24.7%

5 MSDW 52,967,801 39,533,919 -13,433,882 18.9%
2 MACQ 23,393,895 27,735,489 4,341,594 20.8%

1 EVAN 1,982,130 172,912 -1,809,218 18.5%
15


4 COMM 16,025,081 22,499,918 6,474,837 19.8%

2 NAL 16,671,409 13,218,162 -3,453,247 16.5%
5 CSUI 23,545,757 37,085,365 13,539,608 19.%

3 JPM 6,189,096 1,979,071 -4,210,025 16.4%
1 MERL 1,241,882 2,449,920 1,208,038 12.3%

4 CSUI 14,787,234 9,605,237 -5,181,997 15.8%
3 ORDS 580,949 3,717,800 3,136,851 12.2%

2 DAIW 3,647,270 683,439 -2,963,831 14.2%
3 MACQ 13,371,030 16,342,374 2,971,344 11.6%

4 CIMB 7,201,414 2,680,452 -4,520,962 13.8%
5 BELL 5,766,353 12,485,129 6,718,776 9.4%

2 UBS 42,070,934 39,319,180 -2,751,754 13.2%
2 ITG 1,802,351 3,705,415 1,903,064 9.1%

2 MERL 12,137,831 9,505,113 -2,632,718 12.6%
4 ETRD 3,821,812 6,591,428 2,769,616 8.5%

5 GS 46,829,463 38,069,757 -8,759,706 12.3%
5 ETRD 24,329,361 30,294,443 5,965,082 8.4%

4 CLSA 4,585,102 605,173 -3,979,929 12.1%
3 AIEX 2,686,530 4,645,977 1,959,447 7.6%

2 GS 48,213,527 45,914,219 -2,299,308 11.%
5 AIEX 11,744,519 16,859,773 5,115,254 7.2%

5 CITI 77,935,701 71,146,862 -6,788,839 9.5%
5 DMG 43,756,636 48,799,422 5,042,786 7.1%

3 ITG 3,426,630 1,109,941 -2,316,689 9.0%
4 GS 28,480,063 30,804,010 2,323,947 7.1%

1 TAYL 872,428 33,848 -838,580 8.6%
4 UBS 19,535,069 21,868,594 2,333,525 7.1%

4 MERL 7,413,673 4,647,923 -2,765,750 8.4%
1 UBS 13,113,894 13,783,151 669,257 6.8%

5 MERL 17,565,804 11,595,150 -5,970,654 8.4%
2 INST 5,452,161 6,825,157 1,372,996 6.6%

1 CSUI 8,028,627 7,310,811 -717,816 7.3%
3 ETRD 2,816,399 4,488,320 1,671,921 6.5%

1 CITI 10,520,097 9,834,198 -685,899 7.0%
4 AIEX 3,675,670 5,562,856 1,887,186 5.8%

2 DMG 35,888,353 34,599,898 -1,288,455 6.2%
2 CSUI 23,479,068 24,663,126 1,184,058 5.7%

2 JPM 13,042,342 11,870,653 -1,171,689 5.6%
5 NATO 4,749,965 8,766,014 4,016,049 5.6%

1 MSDW 7,847,056 7,316,612 -530,444 5.4%
4 BELL 3,212,647 4,914,665 1,702,018 5.2%

2 EVAN 1,338,251 302,397 -1,035,854 5.0%
3 MACP 1,635,073 2,944,439 1,309,366 5.1%

5 CIMB 4,021,857 760,148 -3,261,709 4.6%
5 PETRA 1,600,000 5,005,000 3,405,000 4.8%

1 MACP 559,194 124,898 -434,296 4.4%
4 JPM 5,070,023 6,540,312 1,470,289 4.5%

3 DAIW 1,083,000 25,000 -1,058,000 4.1%
3 CITI 25,585,522 26,691,802 1,106,280 4.3%

5 BBY 17,964,088 15,143,359 -2,820,729 4.0.%
5 TIMR 2,599,225 5,683,177 3,083,952 4.3%

2 NDAL 643,558 5,008 -638,550 3.1%
1 COMM 1,833,118 2,222,581 389,463 4.0%

4 CITI 14,449,455 13,470,782 -978,673 3.0%
1 ITG 288,171 620,059 331,888 3.4%

4 BTIG 1,819,575 861,174 -958,401 2.9%
2 AUST 145,478 799,825 654,347 3.1%

1 JPM 6,005,706 5,728,559 -277,147 2.8%
3 CIMB 2,575,290 3,382,376 807,086 3.1%

4 MACQ 14,095,150 13,193,618 -901,532 2.8%
1 MOELIS 0 290,000 290,000 3.0%

5 MACQ 35,436,929 33,571,824 -1,865,105 2.6%
2 MSDW 20,799,499 21,410,282 610,783 2.9%

4 INST 2,349,085 1,516,183 -832,902 2.5%
2 MOELIS 120,000 711,055 591,055 2.8%

2 RBSM 1,955,751 1,428,576 -527,175 2.5%
3 SBAR 216,447 894,022 677,575 2.6%

4 MOELIS 877,700 100,089 -777,611 2.4%
2 MFGBL 184,095 714,876 530,781 2.5%

5 ORDS 5,054,101 3,378,869 -1,675,232 2.4%
4 CCZ 32,917 760,000 727,083 2.2%

1 SHAW 234,210 16,220 -217,990 2.2%
1 PSL 25,982 154,043 128,061 1.3%

5 VIRT 8,760,871 7,181,438 -1,579,433 2.2%

Surprisingly, the Annual Reports for 2010, 2011 and 2012 reveal that institutional ownership as a group has
actually been maintained at comparatively high levels. A seemingly stable register has emerged,
despite all of the buying and selling taking place much of it surrounded by panic;
despite all of the negativity flowing from chronic earnings disappointments;
despite all of the negative press;
despite a substantial capital raising that caused massive dilution of the register, and;
despite two failed takeover attempts by TPG.

The table summarizes 3 years of registry activity and represents a very substantial amount of trading. In fact
from mid-August 2009 to mid-August 2012 which spans the trading summarized in the 3 Annual Reports,
around 1.596 billion shares were bought and sold.

REGISTRY STATISTICS 2010 2011 2012
Full Register 253,122,552 254,037,587 478,944,292
Top 20 Totals 211,866,229 215,946,007 378,035,048
% of Register 83.7% 85.0% 78.9%

Institutional Holdings 158,682,997 170,438,879 295,202,229
% of Register 62.6% 67.1% 63.2%
% of Top 20 74.9% 78.9% 78.1%
Institutional holdings even allowing for
the 6 for 7 entitlement offer have
averaged around 64% of the register
despite the 1.6 billion shares that have
traded. It represents an inordinate
amount of churning of holdings.
16

Institutional holdings have averaged 64.3% of the entire register across the 3 Annual Reports and have
averaged 77.3% of the registers Top 20. It demonstrates that trading churn has run at high levels with
institutions generally engaging in a pass the parcel exercise between themselves irrespective of how the
trading algorithms of multiple brokers have processed the transactions perhaps to confuse the issue. While
individual holdings have varied, ownership as a group has actually been maintained.

The year by year changes to the holdings of the major institutional shareholders are summarized below.

2010 2011 2012
Entity
Holding % of Register Holding % of Register Holding % of Register
HSBC Nominees 43,256,012 17.1% 34,089,046 13.4% 53,123,837 11.1%
J P Morgan Nominees 39,070,171 15.4% 50,222,395 19.8% 88,155,051 18.4%
National Nominees 32,984,219 13.0% 49,032,954 19.3% 65,405,980 13.7%
Citicorp Nominees 27,792,512 11.0% 23,836,134 9.4% 59,076,243 12.3%

The changes are not major but in any case they are difficult to interpret because of the impact that securities
lending has on portfolios. Where there have been reductions for example, the changes in holdings may in part
be due to the selling down of the holding but it may also be due to shares that have been lent out to other
entities and then short sold into the market.
In fact short selling alone could be responsible for say the decrease by HSBC between 2010 and 2011 (i.e.; a fall
of 9.2 million shares) and at the same time part of the increase by National Nominees during the same period
(i.e.; an increase of 16 million shares). The changes certainly need to be weighed against the fact that open
short positions increased from 7.3 million shares to 22.1 million shares in the period (i.e.; between the 2010
and the 2011 Annual Reports. Shares lent out do undergo changes of ownership with the lender showing a
reduction in holding and the purchaser showing an increase.
Given an absence of genuine selling as revealed by the register, short selling has very likely played a pivotal role
in share price declines. However the practice is wide open to abuse under current arrangements that sanction
its use. Profits from short selling have come at the expense of those whose shares have been lent out, and in
the main it is the investors who have shares controlled by institutional fund managers.
Time and time again over the 5 periods reviewed it has been the portfolios of those with funds under
management who have facilitated the short selling. In return they would have received marginal fees for the
use of their shares and they would also have received massive losses to the value of their portfolios because of
the short selling. Billabong investors with funds under management would have good reason to question the
motives of those who have continuously sacrificed their holdings for the benefit of other institutions who have
positioned themselves to rake in profits from shorting. Allegiances between fund managers and preparedness
by some to sacrifice client funds for the benefit of fellow professionals, perhaps for the return of a similar
favour at a future time, may explain a substantial portion of the churn trading that has taken place in Billabong
and for that matter right across the ASX.
The pattern of BBG share price declines but with the register showing that institutions as a group have retained
their holdings (at least up to the time of the 2012 Annual Report) points towards either collusion by brokers or
collusion by entities acting through multiple brokers. Tranches of shares appear to be passed around in such a
way that delivers gains through short selling but at the same time control over the shares sold short is
maintained within institutional ranks. Such an arrangement would help explain how open short positions
appear to have been conveniently managed.
17

Essentially, the purchasers of shares sold short appear to be more than willing to make them available to ease
the short position exposures undertaken by their industry affiliates. With cooperation, the covering of short
positions could easily be achieved with stock supplied to the market just as brokers are looking to buy back the
shares short sold. Covering could also occur on mutually acceptable terms either through off-market dealings or
through Dark Pools where fair price discovery is avoided. The issue of collusion is not new and there was a
precedent cited in Research Paper 7.1 (Pg. 71) involving TPG attempting to secure the assets of targeted
companies cheaply through unfair means.
Certainly the covering of shorts in BBG doesnt seem to have resulted in any share price appreciation while on
the other hand the building of positions on market has severely depressed prices.

18

7.3.1.4 TIMELINE OF SIGNIFICANT EVENTS: Oct 2011 through to April 2013
The trading in Billabong from October 2011 through to the end of April 2013 day has been characterized by
several key events. All events have had ramifications for the Billabong share price. They are listed as follows:
AGM 2011 - Earnings Outlook
Price Slump Nov 24, 2011 (An ASX Price Query followed on Nov 25)
Trading Update Dec 19, 2011
Capital Structure Review, Nixon JV, Half Year Accounts Feb 17, 2012
TPG Offer Received ($3 per share) Feb 20, 2012
TPG Update: Feb 27
TPG Update: Feb 28 (TPG bid rejected)
Cash Raising - Jun 21, 2012
TPG Second Bid Received ($1.45) July 24, 2012
TPG Granted Due Diligence authority - July 27, 2012
Additional BID Received (Bain Capital) Sept 6, 2012
Second BID Withdrawn - Sept 20, 2012
Press Announces TPG will not proceed refuted by BBG - Oct 4, 2012
ASX Price Query Oct 4
TPG Withdraws Oct 12, 2012
Chairman Ted Kunkel Retires Nov 11, 2012
BBG Director Paul Naude steps down to prepare a further bid for control of BBG Nov 19, 2012
Paul Naude $1.10 Bid Received (Sycamore partners) Dec 19, 2012
Paul Naude Bid Re-affirmed but without confidentiality provisions Dec 19, 2012
BBG, Chief Financial Officer, Craig White, steps down Dec 20, 2012
Paul Naude Granted authority to conduct Due Diligence Dec 24, 2012
Receipt of Altamont /VF Consortium BID Jan 14, 2013 also pitched at $1.10 per share
Press Reports that Both Bids could be reduced or withdrawn March 21, 2013 (Refuted by the
company)
Trading Halt & Suspension for Sycamore to finalize a 60 cent offer April 9, 2013
Extension of time granted to Paul Naude/Sycamore consortium to finalize their 60 cent bid April 24
Trading Halt & Suspension Further discussions with all interested parties May 9, 2013
The events portray a deteriorating outlook for Billabong with agreement failing to be reached with 4 different
consortiums and with offers retreating from $3.30, to $1.45 to $1.10 to 60 cents none of which ever became
conditional. Along with the diminishing bids for the company has been an exodus of key personnel and a
deterioration in the outlook for the company perhaps presciently alluded to by Ted Kunkel in his address at the
2011 AGM on Oct 25 when he stated:
It will be no surprise to anyone in this room when I say that the 2010-11 financial year was extremely difficult
for the Billabong Group. It was a year of great economic uncertainty around the world; a year of very
significant foreign exchange rate fluctuations; and a year in which natural disasters struck multiple countries
in the Groups highest margin territory of Australasia. These events further eroded what was already fragile
consumer confidence, in particular in Australia and, late in the year, Europe, which ultimately impacted
wholesale and retail sales. Added to this, the Group faced a year when the cost of raw materials such as
cotton reached all-time highs and significant wage cost pressures emerged in the China supply chain, with
little or no ability to recover these costs in competitive, price-sensitive markets. All of these factors combined
to reduce the Groups overall profitability.
19

There can be no doubt that the underlying factor behind share price falls has been a deteriorating earnings
outlook for the company, but the situation has been seized upon by:
Interests looking to bid for the company;
Billabongs financiers who have been heavily exposed to the company, and;
Market participants who have profited through various trading strategies some of which carry the
stigma of possible share price manipulation given the anomalies associated with substantial volumes of
trading data.
The positioning of TPG is reflected in the deal they struck with Colonial First State and Perennial Value
Management to take over their holdings should TGPs $1.45 bid be approved. The trading by those two
groups therefore comes under scrutiny as well. They were active in selling down the share price following the
Dec 19, 2011 earnings down grade but they were also able to accumulate substantial holdings throughout the
market turmoil that ensued. (Refer Research Paper 7.1 Sections 7.1.3.8.1.11, and 7.1.3.9.1 through to 9.4)
The TPG move in relation to Colonial First State and Perennial Value Management also raises queries about
what influences they may have had behind the scenes and if the trading that led to lower prices was in any
way connected to them or their associates.
The malaise of Billabong through tough trading conditions and a deteriorating earnings outlook must not take
away from any unfair trading tactics employed to profit through dubious short selling and through managing
the market in ways that may not meet with approval if properly investigated. Certainly, collusive trading by
entities acting through multiple brokers is the scenario that best fits trading data as detailed in the following
sections. The circumstances surrounding BBGs demise with negative news about the companys earnings
problems and balance sheet may simply have allowed dubious trading behaviours to pass unnoticed.

7.3.1.5 THE BBG SHARE PRICE CORRESPONDING TO SIGNIFICANT EVENTS:

$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
AGM Address
Oct 25,2011
Price Query
Earnings Update
TGP BID
Revised TGP BID Rejected
Bain Capital BID (withdrawn 14 days later)
Paul Naude and
Altimont BIDS at $1.10

Press Reports Re TPG withdrawing
TPG officially withdraws
Revised Offer of 60 cents

Capital Raising announcement

2011 2012 2013 2013
Oct 1 Apr 30
SHARE PRICE CHART SHOWING SIGNIFCANT EVENTS
Press Reports about
problems with the BIDS

20

7.3.1.6 SHARE PRICE MANIPULATION ISSUES
The research that follows looks at the trading activity accompanying all of the key events that have been
itemized in the timeline of Section 7.3.1.4 and highlighted in the previous chart. However, in assessing trading
trends, it needs to be borne in mind that market manipulation can and does occur even though it mostly
passes under the radar of regulators because of flexibilities that exist in current regulatory frameworks.
As pointed out in Research Paper 7.1 Section 7.1.3.6 (Pg. 35) and again repeated herewith, share price
manipulation manifests in a variety of ways where fund managers acting through groups of brokers and
where brokers and entities acting in their own right can exercise control over the market through:

The use of proprietary trading programs that deliver control over pricing levels through the forcing of
Down Ticks through various crossing strategies and through sales between groups of brokers all of which
appear to be coordinated by algorithms;
Control (again via trading algorithms) over the setting of prices during auctions;
The selling of shares by entities back and forth to themselves (i.e. trading churn) with orders distributed
amongst a large number of brokers to camouflage the activity;
The re-balancing of holdings without price discovery through extensive off-market transfers and through
trades executed in dark pool venues;
The implementation of particular trading agendas through designated brokers but with trading put
through other brokers designed to facilitate the particular trading agenda, (e.g.; buying or selling through
one or more brokers but churning stock through others in an attempt to control/manage the market)
Using the system of short selling as a manipulative trading tool whereby downward pressure on the share
prices occurs through short selling in the market and where adjustments to short exposures are done off-
market to avoid fair price discovery. The activity suggests collusion by those with short exposure and
those who are willing to supply shares off-market to reduce those exposures;
Wrong footing and panicking retail investors through tactics such as deliberately selling down
announcements that herald major developments for the company. A disappointing share price reaction
invariably takes away from the significance of an announcement and leads to investor angst;
Registering substantial holdings across multiple nominee accounts within an institution or across multiple
accounts with multiple institutions thus providing the substantial holder with various options to deliver
buying and/or selling orders to assist with trading agendas;
Panicking investors by using large buy bids to support the price and then suddenly selling into the bids to
give the appearance of price weakness but where the buying and selling has been between related
entities;
Capitalizing on trading volatility by entities engineering price falls in trading between themselves that
lead to the margin limits of exposed investors being triggered and to irrational panic amongst retail
investors thereby accelerating price falls;
Camouflaging extensive levels of what might be considered wash trades (i.e. no changes to beneficial
ownership) by putting many of the trades through brokers with large numbers of retail clients and then
settling on the net positions at the close of trading;
Taking advantage of a settlement system where the brokers used for high volumes of dubious
institutional trades are not identified on the register, thus further camouflaging the trading activity;
Taking advantage of unreliable reporting systems to disguise trading activity as evidenced by substantial
changes in short positions not being matched by corresponding changes in stock lending & stock
borrowing data, and where for example a large increase in open positions is usually not reflected on the
register by corresponding falls in the lenders holding.
The deliberate selling down of a holding to create volatility only to re-purchase shares as investors panic;
The leaking of information to the media by company insiders where the news items so generated are
used to justify specific trading agendas.
All of the above needs to be taken into account in assessing the trading associated with the significant events
related to the affairs of Billabong Corporation.
21

Section 7.3.1.7
BBG TRADING ACCOMPANYING SIGNIFICANT EVENTS
The research that follows focusses on the broker trading accompanying the significant events detailed in the
timeline of Section 7.3.1.4 and the chart of Section 7.3.1.5 and where the trading behaviours itemized in
Section 7.3.1.6 have all come to the fore.
Trading data draws attention to the brokers who have played leading roles in trading anomalies but only some
of the volumes would have related to their own house trading activities. The majority of share flows are
associated with the dealings of sophisticated investors and generally their activities are invisible to the
market. The invisibility arises due to:
Most trading avoids substantial shareholder reporting requirements, and;
The system of trading and settlements is opaque as far as sophisticated traders are concerned.
Being able to reconcile trading activity of brokers and the impact that their clients have on the register is an
exceedingly laborious and occasionally futile undertaking. For example, in the extreme case of entities trading
through multiple brokers as a nominee account that sits on the register within a nominee account or multiple
nominee accounts of one or more investment banks and where the legal ownership of the entity is lodged in a
foreign jurisdiction, shows how difficult it can be to track the trading of some sophisticated investors.
Such a system means that regulators appear to accept all trading at face value, knowing that the flexibilities
within the system and the difficulties in reconciling trading would make any attempt to prosecute for wrong
doing arduous and problematical at best. The fact that successful prosecutions for market manipulation are a
rarity and that the usual approach is to fine transgressors for any misdemeanours with a no guilt clause
signed off on payment of the fine, show what a protected species that entities responsible for chronic trading
anomalies can be.
However the fact that such a system is allowed to prevail by regulators and by default Treasury, and the fact
that regulation is funded by tax payer money where their ought to be a degree of accountability for the role
they have been entrusted to perform, is of cold comfort to genuine investors who have lost considerable nest
eggs in the market. The losses have arisen through diminished superannuation returns and through trading
losses on their own account, precipitated no doubt by difficult economic conditions, but exacerbated by
unfairly controlled and/or manipulated markets as suggested by research into trading data.
Meanwhile sophisticated investors will no doubt continue to take advantage of a non-transparent poorly
audited system at the expense of those unable to compete in an un-level playing field, of those with funds
under dubious management practices especially as related to short selling and the possible over-trading of
accounts to generate commissions and fees, and at the expense of those unable to access the privileges
afforded to sophisticated investors. Regulators will probably continue to look sideways given the difficulties in
reconciling trading and in establishing wrong doing in ways that are prosecutable given the opportunity for
unfair trading made possible by current trading guidelines.
The trading of Billabong brought to notice in the following sections needs to be considered in the light of the
above and the reality that there are gross deficiencies in the way that markets are allowed to function;
deficiencies likely to be made worse now that trading algorithms have been given the green light by ASIC.
22

7.3.1.7.1.1 TRADING LEADING UP TO THE PRICE SLUMP ON DEC 19, 2011: The price query on Nov 25, 2011
The price query was prompted by a share price slump on Nov 24 where the share price fell from $4.16 as per
the previous days close, to $3.57 before recovering to close at $3.64. The response to the price query by the
company (LINK) referred to the comments made by the CEO at the AGM several weeks prior on Oct 25, 2011,
where both the Chairman and the CEO addressed the challenges faced by the company.
Yet the advice delivered to the market on Oct 25, 2011 actually resulted in a share price increase in the days
and weeks that followed as highlighted in the chart below.

The explanation provided by the company and the share price reaction to news released at the AGM a month
earlier suggests that the slump on Nov 24 was more likely to be the result of insider activity than a delayed
response to the AGM news; particularly as 3.3 million short positions were added by the time the price peak
was reached on Nov 14, 2011. The leading brokers up until the price peaked on Nov 14, are summarized in the
table below.
LEADING BROKERS Oct 21 to Nov 14, 2011 LEADING BROKERS BY NET BUYING & NET SELLING
CITI 11,280,711 10,447,715 -832,996 27.0% MERL 2,095,682 5,185,157 3,089,475 45.2%
DMG 7,179,112 5,258,731 -1,920,381 14.9% COMM 991,647 1,959,525 967,878 14.2%
MSDW 3,940,648 3,613,777 -326,871 9.2% UBS 2,356,734 2,889,408 532,674 7.8%
MERL 2,095,682 5,185,157 3,089,475 8.7% GS 1,283,483 1,740,139 456,656 6.7%
UBS 2,356,734 2,889,408 532,674 6.3% SBAR 92,543 488,285 395,742 5.8%
CSUI 3,640,386 1,695,755 -1,944,631 6.3% ITG 10,679 365,710 355,031 5.2%
GS 1,283,483 1,740,139 456,656 3.6% JPM 137,294 415,562 278,268 4.1%
COMM 991,647 1,959,525 967,878 3.6% INST 971,853 1,137,060 165,207 2.4%
MACQ 1,288,964 1,420,284 131,320 3.3% MACQ 1,288,964 1,420,284 131,320 1.9%
INST 971,853 1,137,060 165,207 2.5% Other 1,366,616 1,832,899 466,283 6.8%
SUSQ 918,908 890,782 -28,126 2.2%

Total 6,838,534

NAL 535,025 458,187 -76,838 1.2%

Net Selling
BBY 493,246 477,958 -15,288 1.2% BROKER SELLS BUYS NET SELLS NET %
DAIW 1,080,000 0 -1,080,000 1.1% CSUI 3,640,386 1,695,755 -1,944,631 28.4%
CLSA 419,937 429,169 9,232 1.0% DMG 7,179,112 5,258,731 -1,920,381 28.1%
ETRD 395,345 299,363 -95,982 0.8% DAIW 1,080,000 0 -1,080,000 15.8%
AIEX 371,730 237,961 -133,769 0.7% CITI 11,280,711 10,447,715 -832,996 12.2%
SBAR 92,543 488,285 395,742 0.7% MSDW 3,940,648 3,613,777 -326,871 4.8%
JPM 137,294 415,562 278,268 0.7% AIEX 371,730 237,961 -133,769 2.0%
MACP 240,436 256,692 16,256 0.6% SHAW 122,851 3,700 -119,151 1.7%
CIMB 212,528 270,776 58,248 0.6% ETRD 395,345 299,363 -95,982 1.4%
ITG 10,679 365,710 355,031 0.4% ORDS 123,361 32,995 -90,366 1.3%
SOSL 172,511 166,511 -6,000 0.4% NAL 535,025 458,187 -76,838 1.1%
Other 1,163,974 1,168,869 4,895 2.8% Other 2,008,712 1,791,163 -217,549 3.2%
Totals 41,273,376 41,273,376 0 100%

Total -6,838,534

$3.45
$3.65
$3.85
$4.05
$4.25
$4.45
$4.65
Oct
21
Oct
25
Oct
27
Oct
31
Nov
2
Nov
4
Nov
8
Nov
10
Nov
14
Nov
16
Nov
18
Nov
22
Nov
24
AGM Oct 25
A share price rise of 24% from
the day prior to the AGM
A fall of 52 cents on
Nov 24, 2011
Nov 14
Nov 24
Open Short Positions

Oct 24: 25.0 million
Nov 14: 28.3 million
Oct 24
Substantial rise
following the AGM
23

Broker Citigroup was the leading broker by market share in trading following the AGM with both Credit Suisse
and Deutsche Bank prominent net sellers. Merrill Lynch was the leading net buyer. The Citigroup activity as
the leading broker by market shares is difficult to comprehend given their average selling price for the period
was $4.29 yet their average buying price was marginally higher at $4.295.

The leading brokers associated with price declines from Nov 15 to Nov 24 are also listed below.

Citigroup were replaced by Deutsche Bank as the leading broker by market share with total volumes traded
(22.7 million) only around half of that for the previous period (41.3 million).

LEADING BROKERS Nov 15 to Nov 24, 2011 LEADING BROKERS BY NET BUYING & NET SELLING
DMG 5,482,668 6,111,247 628,579 26.3% UBS 1,907,613 2,899,629 992,016 17.1%
CITI 3,018,416 3,618,091 599,675 14.6% MACQ 1,148,280 1,940,459 792,179 13.6%
UBS 1,907,613 2,899,629 992,016 10.5% DMG 5,482,668 6,111,247 628,579 10.8%
GS 3,721,138 988,657 -2,732,481 9.9% CITI 3,018,416 3,618,091 599,675 10.3%
MSDW 3,063,157 1,019,042 -2,044,115 8.6% CIMB 61,718 586,718 525,000 9.0%
MACQ 1,148,280 1,940,459 792,179 6.7% ORDS 16,408 455,625 439,217 7.6%
CSUI 905,175 676,969 -228,206 3.5% MERL 276,574 706,694 430,120 7.4%
SUSQ 547,306 574,177 26,871 2.5% BBY 210,551 624,594 414,043 7.1%
MERL 276,574 706,694 430,120 2.2% COMM 310,291 601,779 291,488 5.0%
INST 554,000 349,282 -204,718 2.0% Other 747,996 1,443,350 695,354 12.0%
COMM 310,291 601,779 291,488 2.0%

Total 5,807,671

BBY 210,551 624,594 414,043 1.9%

Net Selling
CIMB 61,718 586,718 525,000 1.3% BROKER SELLS BUYS NET SELLS NET %
MACP 403,309 77,336 -325,973 1.1% GS 3,721,138 988,657 -2,732,481 47.0%
ORDS 16,408 455,625 439,217 1.1% MSDW 3,063,157 1,019,042 -2,044,115 35.2%
TIMR 212,250 209,611 -2,639 0.9% MACP 403,309 77,336 -325,973 5.6%
SBAR 62,572 276,750 214,178 0.8% CSUI 905,175 676,969 -228,206 3.9%
ITG 218,071 109,571 -108,500 0.8% INST 554,000 349,282 -204,718 3.5%
BTIG 0 200,000 200,000 0.4% ITG 218,071 109,571 -108,500 1.9%
JPM 69,354 88,605 19,251 0.4% WILS 79,695 31,435 -48,260 0.8%
AIEX 94,597 71,002 -23,595 0.4% AIEX 94,597 71,002 -23,595 0.4%
ETRD 86,797 73,828 -12,969 0.3% TPPM 60,434 38,297 -22,137 0.4%
NAL 4,769 131,194 126,425 0.3% SHAW 20,000 0 -20,000 0.3%
Other 385,584 369,738 -15,846 3.2% Other 460,507 410,821 -49,686 0.9%
Totals 22,760,598 22,760,598 0 100%

Total -5,807,671

Interestingly, CITI and DMG simply changed roles with their dominance over trading between the two periods.
CITI went from a market share of 27.0% to 14.5% while DMG went from 14.9% in the previous period to
26.3% in the period where price declines occurred.
UBS and Macquarie were the leading net buyers from a number of brokers accumulating stock, while
Goldman and Morgan Stanley were the two main net sellers of stock.
Research has shown that broker data alone, or even when combined with registry data, doesnt provide
clarity about what has actually occurred with trading. For example short positions put on by entities acting
through say Goldman Sachs and/or Morgan Stanley, who both net sold in the run up to Nov 14, could have
been covered through different brokers during the price declines that followed.
While short selling strategies are legitimate, what isnt legitimate is any associated buying and selling put
through other brokers designed to facilitate those trading strategies. The potential for such collusive activity is
precisely why clearer accounting procedures for all trading should be in place and why audits should be
mandatory in guaranteeing that price discovery is fair and that trading is genuine.

The net selling by GS & MSDW across both periods was relentless in disposing of 9.4 million shares between them, with a
number of brokers as net buyers including UBS, MACQ, DMG & CITI doesnt make logical sense. Simply because the
brokers represent sophisticated investors with the most informed view of the companys prospects which is also likely to
be a shared view. More likely, the trading patterns represent corporate agendas manifesting through multiple brokers.
24

7.3.1.7.1.2 FURTHER TRADING LEADING TO DEC 19, 2011
Open short positions were maintained at around 28 million shares from Nov 25 up until the Dec 19, 2011
earnings upgrade. Trading during that time is summarized below with Macquarie by far the most prominent
broker by market share. Credit Suisse stepped up as a net buyer with all other net buying and net selling
somewhat subdued.
LEADING BROKERS Nov 25, 2011 to Friday Dec 16, 2011 LEADING BROKERS BY NET BUYING & NET SELLING
MACQ 7,597,854 7,617,808 19,954 20.1% CSUI 1,695,749 3,565,688 1,869,939 35.0%
CITI 4,279,507 5,350,409 1,070,902 12.6% CITI 4,279,507 5,350,409 1,070,902 20.0%
UBS 3,848,706 2,770,308 -1,078,398 8.7% DMG 2,767,453 3,347,769 580,316 10.9%
DMG 2,767,453 3,347,769 580,316 8.1% BELL 12,255 511,695 499,440 9.3%
MSDW 3,530,389 2,468,838 -1,061,551 7.9% PSL 6,591 306,500 299,909 5.6%
CSUI 1,695,749 3,565,688 1,869,939 6.8% CLSA 27,308 221,890 194,582 3.6%
GS 2,458,189 2,542,889 84,700 6.7% CIMB 1,598,309 1,750,732 152,423 2.9%
CIMB 1,598,309 1,750,732 152,423 4.3% INST 886,787 1,029,358 142,571 2.7%
COMM 2,006,682 847,969 -1,158,713 3.8% HART 0 122,500 122,500 2.3%
JPM 1,218,883 1,075,512 -143,371 3.1% Other 11,550,162 11,963,571 413,409 7.7%
INST 886,787 1,029,358 142,571 2.5%

Total 5,345,991

MERL 1,352,538 537,293 -815,245 2.5%

Net Selling
ITG 932,613 637,165 -295,448 2.0% BROKER SELLS BUYS NET SELLS NET %
NAL 598,434 569,732 -28,702 1.5% COMM 2,006,682 847,969 -1,158,713 22.1%
SUSQ 540,307 515,656 -24,651 1.4% UBS 3,848,706 2,770,308 -1,078,398 20.5%
BBY 326,184 399,866 73,682 0.9% MSDW 3,530,389 2,468,838 -1,061,551 20.2%
BTIG 308,000 338,441 30,441 0.8% MERL 1,352,538 537,293 -815,245 15.5%
BELL 12,255 511,695 499,440 0.7% RBSM 466,649 5,000 -461,649 8.8%
AIEX 238,603 249,242 10,639 0.6% ITG 932,613 637,165 -295,448 5.6%
RBSM 466,649 5,000 -461,649 0.6% JPM 1,218,883 1,075,512 -143,371 2.7%
ETRD 184,252 206,647 22,395 0.5% ORDS 173,845 98,760 -75,085 1.4%
PSL 6,591 306,500 299,909 0.4% CMCS 102,693 28,723 -73,970 1.4%
MACP 162,637 127,284 -35,353 0.4% MOELIS 50,000 0 -50,000 0.9%
Other 920,388 1,166,158 245,770 3.2% Other 1,430,840 1,298,279 -132,561 2.5%
Totals 37,937,959 37,937,959 0 100%

Total -5,345,991

Interestingly, the progression of prominent brokers through the three trading periods was as follows.
Period Volume Traded Prominent Broker Market Share
Oct 21 to Nov 14 41,273,376 Citigroup 27.0%
Nov 25 to Nov 24 22,760,598 Deutsche Bank 26.3%
Nov 25 to Dec 16 37,937,959 Macquarie 20.1%

Of particular interest are the entities mainly responsible for the large market shares of each broker. The
following scenarios are provided to indicate various possibilities.
They were one and the same entities;
They were different entities but co-operating with each other in moving tranches of shares around;
They were different entities acting independently.
The third scenario correlates with genuine trading but the other situations ought to provoke concerns.
Without the knowledge of whom was doing what and for whom there is no way of being able to say whether
trading has been fair and reasonable and essentially, that is the predicament faced by regulatory authorities in
todays markets where so much obfuscation and double dealing is allowed to take place.

25

7.3.1.7.2 PRICE DECLINE ON DEC 19, 2011
The trading update released on Dec 19, 2011 showed a substantial slump in sales revenue stemming from a
reduction in discretionary expenditure associated with the sovereign debt crisis and the European recession.
Previous advice of 24.7% sales revenue growth was brought back to just 5%. Revenues would also be
impacted by a stronger Australian dollar. The news released by the company was reflected in the market by a
44.2% share price fall.
On a single day when 25 million shares traded, the share price was heavily shorted with 3.4 million short sales
during trading and with open short positions increasing by 2.45 million.
The Dec 19 announcement was treated harshly by the market suggesting that some of the trading following
the AGM was preparing for such an event particularly with the build-up in short positions.
LEADING BROKERS Dec 19 2011 LEADING BROKERS BY NET BUYING & NET SELLING
COMM 1,974,710 5,057,711 3,083,001 13.9% COMM 1,974,710 5,057,711 3,083,001 31.6%
JPM 4,606,483 382,050 -4,224,433 10.1% DMG 1,545,573 2,730,064 1,184,491 12.1%
MSDW 2,489,350 1,992,738 -496,612 9.3% ORDS 103,200 1,237,380 1,134,180 11.6%
CSUI 3,144,251 1,389,590 -1,754,661 8.8% CITI 590,899 1,333,422 742,523 7.6%
DMG 1,545,573 2,730,064 1,184,491 8.2% AIEX 345,898 1,074,117 728,219 7.5%
GS 1,197,664 1,365,794 168,130 5.0% MACQ 323,555 875,442 551,887 5.7%
UBS 1,329,963 1,053,227 -276,736 4.7% MACP 60,093 519,798 459,705 4.7%
ITG 2,251,067 0 -2,251,067 4.2% ETRD 203,609 585,769 382,160 3.9%
CITI 590,899 1,333,422 742,523 4.1% BELL 86,000 367,730 281,730 2.9%
BBY 853,889 845,750 -8,139 3.5% Other 3,317,874 4,525,819 1,207,945 12.4%
AIEX 345,898 1,074,117 728,219 2.8%

Total 9,755,841

ORDS 103,200 1,237,380 1,134,180 2.7%

Net Selling
MACQ 323,555 875,442 551,887 2.5% BROKER SELLS BUYS NET SELLS NET %
CIMB 625,376 593,236 -32,140 2.5% JPM 4,606,483 382,050 -4,224,433 43.3%
SOSL 428,050 499,157 71,107 1.9% ITG 2,251,067 0 -2,251,067 23.1%
SUSQ 397,009 461,395 64,386 1.8% CSUI 3,144,251 1,389,590 -1,754,661 18.0%
HUB24 410,000 423,000 13,000 1.7% MSDW 2,489,350 1,992,738 -496,612 5.1%
MERL 371,140 288,374 -82,766 1.6% UBS 1,329,963 1,053,227 -276,736 2.8%
ETRD 203,609 585,769 382,160 1.5% INST 328,176 60,957 -267,219 2.7%
TPPM 342,842 419,113 76,271 1.5% PETRA 250,000 0 -250,000 2.6%
PERSH 263,000 425,000 162,000 1.4% BTIG 110,941 0 -110,941 1.1%
MACP 60,093 519,798 459,705 1.1% MERL 371,140 288,374 -82,766 0.8%
BELL 86,000 367,730 281,730 0.9% CIMB 625,376 593,236 -32,140 0.3%
Other 1,051,145 1,074,909 23,764 3.2% Other 936,608 927,342 -9,266 0.1%
Totals 24,994,766 24,994,766 0 100%

Total -9,755,841

The trading of 25 million shares on Dec 19, 2012 saw Commonwealth Securities ranking as the leading broker
by market share, and the leading net buyer, while JP Morgan, ITG and Credit Suisse were substantial net
sellers. The trading patterns based on Iress broker data suggest an institutional dominance over trading. The
charts below show a minute by minute breakdown of the leading net buyer (COMM) and the two leading net
sellers (DMG & ITG). The regular large volume trading pulses evident in the charts are clearly not
representative of retail activity. The chart does not take into account auction trades.
Minute by Minute Data for COMM Purchases

0
50,000
100,000
150,000
Large volume flows and the average
order size suggest institutional trading
not retail activity
89.2% of all trading saw 10,000 shares or
more purchased per minute by COMM. The
average size buy order was 6,134 shares
Open Close
Volume
per Minute
26

Minute by Minute Data for JPM Sales

Minute by Minute Data for ITG Sales

Minute by Minute Trading Statistics
95.2% of all trading by COMM saw buying volumes of 5,000 shares or more every minute.
90.2% of all trading by COMM saw buying volumes of 10,000 shares or more every per minute.

ITG Sales Data JPM Sales Data COMM Purchase Data

Volumes Volumes Volumes
Orders < 5000
87,219 4.7%

176,064
4.0%

230,802 4.8%
Orders >= 5000
1,781,344 95.3%

4,275,579
96.0%

4,627,423 95.2%
Totals
1,868,563 100%

4,451,643
100%

4,858,225 100%

Orders < 10000
215,995 11.6%

542,857
12.2%

524,997 10.8%
Orders >= 10000
1,652,568 88.4%

3,908,786
87.8%

4,333,228 89.2%
Totals
1,868,563 100%

4,451,643
100%

4,858,225 100%

The trading profiles of the leading brokers clearly suggest institutional dealings for the following reasons:
Order sizes are well above the levels normally associated with retail investors. The average purchase order
by Commonwealth Securities was 6,134 shares which is commensurate with the average sell order of the
institutional broker JP Morgan and well in excess of the sort of order size common to retail investors.
Market mayhem such as occurred on Dec 19 would be more likely to encourage retail selling not buying
If COMM retailers were aggressive buyers, so too would have been other retail investors which would
have been reflected in E*TRADE and AIEX data. That didnt occur.
ITGs trading for 4% of the market on Dec 19 is very unusual as for the entire year their market share was
only around 1% of all buying and selling activity. It suggests that the selling was strategic as it is not logical
that an obscure/minor broker would suddenly become a major player at a critical time.

0
50,000
100,000
150,000
200,000
250,000

0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
Again the scale used to
accommodate the peak volume
makes the trading pulses appear
smaller
The selling pulses per minute of the
institutional broker seem smaller than COMMs
buying but it is because of the scale used
87.8% of all trading saw 10,000 shares or
more sold per minute of trading by JPM. The
average size sell order was 6,081 shares

88.4% of all trading saw 10,000
shares or more sold per minute of
trading by ITG
Volume
per Minute
Open Close
Open Close
Volume
per Minute
27

The trading looks to be the result of powerful interests taking advantage of the revenue downgrade to force
the market dramatically lower. In such circumstances, short selling looks to be the instrument of choice rather
than the selling down of individual holdings, and trading patterns suggest that institutional buyers were in
place to accumulate the shares sold short so that the shares remained under institutional control.
Again, such an arrangement with control over the shares sold short to industry friendlies helps to explain
why exposed positions rarely force price adjustments when covering takes place. Alternatively the buying may
also have had something to do with the covering of shorts established at higher prices although the build-up
in open shorts prior to Dec 19 wasnt all that large compared to the levels of buying that occurred. There is of
course the possibility that some short positions werent properly declared.
Part of the reason for any co-operation that takes place might be due to securities lending being so extensive
and the relationships being so intertwined particularly with collateral commitments to keep in balance as well,
that co-operation is the only way forward. The alternative to co-operation would be to pressure short sellers
to cover and that could lead to mayhem as other holdings might need to be sold down to raise funds in a
selling begets selling scenario that would have a very wide impact in the market. Any such co-operation
however is at the expense of all other investors and particularly those whose holdings are sacrificed to
facilitate the short selling.
An examination of the register would be the logical first step in attempting to fully understand the impact of
Dec 19, 2012 trading and what the extent of genuine selling really was.

7.3.1.7.3 TRADING LEADING UP TO THE TPG BID

The period Dec 20, 2011 through to Feb 16, 2012 saw range bound trading with the share price mostly
restrained between $1.80 and $1.90. A trading spike occurred on Feb 17 just before the announcement of a
bid for the company by the TPG Group which was pitched at $3.00 per share. The bid arrived after the close of
trade on Friday Nov 17 and was announced to the market on Monday Feb 20 before the opening.
The trading spike also coincided with several company announcements which included the Half Year accounts
and a capital restructure initiative centred on reducing costs and entering into a strategic JV with its Nixon
brand. On balance, the sharp re-rating on Feb 17 is more likely to be related to insider activity given the
imminent $3 bid as the announcements by themselves couldnt justify the $212 million increase in market
capitalization that occurred. The unusual trading spike was never queried by the ASX and the circumstances
are still deserving of a proper investigation.
The BBG share price trend from immediately following the Dec 19, 2011 earnings report through to Feb 17,
2012 is summarized below.

$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
BBG Share Price: Dec 19, 2012 to Feb 17, 2012
Trading spike
likely to be the
result of insider
activity
Dec 19,2011

Feb 17,2012

Friday Dec 16, 2011

Dec 19 share
price slump
152.3 million shares traded between Dec 20,2011 and
Feb 16, 2012 with prices constrained to a narrow band
Feb 16
Dec 20
28

Trading leading up to the TPG bid was characterized by back and forth churn with large amounts of net selling
by CSUI and MSDW, being eventually accommodated by ready buyers in UBS, COMM and ORDS after being
churned through a range of other brokers. Rarely do large tranches of shares flow directly from one broker to
another, and invariably, large net buyers appear to disguise their true intentions with large amounts of selling
and vice versa.
The behaviours draw attention to all of the non-genuine trading (i.e.; no beneficial changes to ownership) that
gets distributed to a number of brokers and which is processed in the market via algorithms all perhaps done
with the intention of camouflaging trading strategies. The net effect however is likely to compromises the
markets ability to provide fair price discovery with prices readily managed by the most influential players.
A trading summary for the leading brokers between Dec 20 and Feb 16 is as follows.
LEADING BROKERS Dec 20 2011 to Feb 16, 2012 LEADING BROKERS BY NET BUYING & NET SELLING
COMM 18,234,206 21,006,015 2,771,809 12.9% UBS 12,320,161 18,235,706 5,915,545 35.1%
DMG 16,430,262 17,639,801 1,209,539 11.2% COMM 18,234,206 21,006,015 2,771,809 16.5%
UBS 12,320,161 18,235,706 5,915,545 10.0% ORDS 564,460 2,798,781 2,234,321 13.3%
CSUI 18,609,591 10,341,990 -8,267,601 9.5% AIEX 3,535,211 4,772,524 1,237,313 7.3%
GS 14,280,025 13,074,076 -1,205,949 9.0% DMG 16,430,262 17,639,801 1,209,539 7.2%
CITI 13,102,941 11,950,937 -1,152,004 8.2% ETRD 4,513,450 5,105,459 592,009 3.5%
MSDW 13,687,674 11,122,831 -2,564,843 8.1% MACP 1,753,357 2,296,846 543,489 3.2%
MACQ 6,759,111 7,197,778 438,667 4.6% MACQ 6,759,111 7,197,778 438,667 2.6%
ETRD 4,513,450 5,105,459 592,009 3.2% INST 2,133,474 2,534,390 400,916 2.4%
AIEX 3,535,211 4,772,524 1,237,313 2.7% Other 9,340,096 10,831,444 1,491,348 8.9%
BBY 3,800,159 3,841,793 41,634 2.5%

Total 16,834,956

MERL 3,943,311 3,322,154 -621,157 2.4%

Net Selling
SOSL 2,397,306 2,353,016 -44,290 1.6% BROKER SELLS BUYS NET SELLS NET %
INST 2,133,474 2,534,390 400,916 1.5% CSUI 18,609,591 10,341,990 -8,267,601 49.1%
HUB24 2,155,815 2,036,965 -118,850 1.4% MSDW 13,687,674 11,122,831 -2,564,843 15.2%
MACP 1,753,357 2,296,846 543,489 1.3% EVAN 1,557,262 153,102 -1,404,160 8.3%
ORDS 564,460 2,798,781 2,234,321 1.1% GS 14,280,025 13,074,076 -1,205,949 7.2%
TPPM 1,629,118 1,724,079 94,961 1.1% CITI 13,102,941 11,950,937 -1,152,004 6.8%
SUSQ 1,664,226 1,588,329 -75,897 1.1% JPM 982,762 345,989 -636,773 3.8%
BELL 1,388,015 1,575,677 187,662 1.0% MERL 3,943,311 3,322,154 -621,157 3.7%
PERSH 1,393,730 1,198,563 -195,167 0.9% NAL 791,665 593,014 -198,651 1.2%
D2MX 1,115,789 1,076,039 -39,750 0.7% PERSH 1,393,730 1,198,563 -195,167 1.2%
EVAN 1,557,262 153,102 -1,404,160 0.6% SHAW 205,239 53,024 -152,215 0.9%
Other 5,344,487 5,366,290 21,803 3.2% Other 8,175,153 7,738,717 -436,436 2.6%
Totals 152,313,141 152,313,141 0 100%

Total -16,834,956

Feb 17 trading saw an opening auction price of $2.80 which was an increase of $1.01 from the previous close
of $1.79. The leading brokers in the auction were as follows.
Broker Sells Buys Net Buys

Broker Sells Buys Net Sells
CITI 2,822 415,932 413,110

COMM 252,532 32,400 -220,132
DMG 68,074 300,000 231,926

GS 223,000 3,000 -220,000
MACQ

100,000 100,000

AIEX 140,828

-140,828
UBSW 1,801 55,618 53,817

ETRD 64,018

-64,018
MACP 2,000 50,000 48,000

ISAL 50,000

-50,000
LODG

10,000 10,000

CSUI 40,025

-40,025
ORDS 21,000 20,000 -1,000

EVAN 25,000

-25,000

14 Others 95,850

-95,850
Totals 95,697 951,550 855,853

Totals 891,253 35,400 -855,853

Brokers CITI and DMG and possibly MACQ appear to have traded with a view on the market drastically
different to the other 21 brokers who all sold to take advantage of the higher prices on offer. Their strong
buying was clearly motivated by more than the half yearly accounts, which were not strong, or the
restructure initiative, particularly with the opening price representing a 56% gain from the previous close.
In retrospect, the meteoric rise at the beginning of trading on Feb 17, and with the TGP $3.00 bid
announced to the market the next trading day, looks particularly suspicious and deserving of investigation.
3 buyers accounted for 83% of all buying in a large opening auction
29

A trading summary for all of Feb 17 follows.
LEADING BROKERS Feb 17, 2012 LEADING BROKERS BY NET BUYING & NET SELLING
UBS 3,080,732 4,381,803 1,301,071 14.9% UBS 3,080,732 4,381,803 1,301,071 18.0%
DMG 2,475,279 3,192,997 717,718 11.4% ORDS 77,000 1,326,415 1,249,415 17.3%
CITI 2,224,988 3,079,594 854,606 10.7% MACQ 1,750,520 2,969,558 1,219,038 16.9%
MACQ 1,750,520 2,969,558 1,219,038 9.4% DAIW 0 1,017,110 1,017,110 14.1%
COMM 2,406,858 967,793 -1,439,065 6.8% CITI 2,224,988 3,079,594 854,606 11.8%
GS 2,353,882 942,000 -1,411,882 6.7% DMG 2,475,279 3,192,997 717,718 9.9%
MERL 1,328,584 1,143,623 -184,961 4.9% AUST 42,800 255,000 212,200 2.9%
MSDW 1,030,323 1,192,961 162,638 4.4% MSDW 1,030,323 1,192,961 162,638 2.3%
ORDS 77,000 1,326,415 1,249,415 2.8% NAL 4,527 142,991 138,464 1.9%
CSUI 823,728 438,252 -385,476 2.5% Other 1,105,012 1,452,662 347,650 4.8%
BBY 611,978 601,201 -10,777 2.4%

Total 7,219,910

ETRD 877,167 283,333 -593,834 2.3%

Net Selling
JPM 534,227 484,292 -49,935 2.1% BROKER SELLS BUYS NET SELLS NET %
DAIW 0 1,017,110 1,017,110 2.1% COMM 2,406,858 967,793 -1,439,065 19.9%
AIEX 757,922 141,404 -616,518 1.8% GS 2,353,882 942,000 -1,411,882 19.6%
ITG 772,890 0 -772,890 1.5% ITG 772,890 0 -772,890 10.7%
INST 283,327 396,786 113,459 1.4% AIEX 757,922 141,404 -616,518 8.5%
SUSQ 323,459 340,409 16,950 1.3% ETRD 877,167 283,333 -593,834 8.2%
PSL 329,512 305,000 -24,512 1.3% CLSA 533,009 0 -533,009 7.4%
CLSA 533,009 0 -533,009 1.1% EVAN 525,000 0 -525,000 7.3%
EVAN 525,000 0 -525,000 1.1% CSUI 823,728 438,252 -385,476 5.3%
MACP 234,109 243,250 9,141 1.0% MERL 1,328,584 1,143,623 -184,961 2.6%
SOSL 240,246 220,184 -20,062 0.9% BTIG 133,000 0 -133,000 1.8%
Other 1,364,819 1,271,594 -93,225 5.3% Other 2,636,338 2,012,063 -624,275 8.6%
Totals 24,939,559 24,939,559 0 100%

Total -7,219,910

OBSERVATIONS
The prominence of CITI, DMG and MACQ in the opening auction is again reflected in their leading
market shares for the days trading and also by them being amongst the leading net buyers of stock for
the day. Joining them was UBS, who was the the leading broker across the entire days trading and the
leading net buyer. However, UBS had only a minor involvement in the opening auction.
The performance of Daiwa is also interesting with their strong accumulation without any selling. It
draws attention to what might have motivated their strong buying and who they may have been acting
for in a similar way to the ITG selling on Dec 19, 2011. (i.e. a low profile broker suddenly adopting a
leading profile in the market)
Given the poor share price performance leading up to Feb 17, the net selling by the retail brokers such
as COMM, ETRD and AIEX is likley to represent the frustrations of retail investors taking advantage of
higher prices and not being aware of an imminent bid for the company.

CLOSING AUCTION: Feb 17, 2012
Broker Sells Buys Net Buys

Broker Sells Buys Net Sells
DMG 95,522 342,188 246,666

COMM 354,965 12,500 -342,465
ORDS 2,500 157,403 154,903

ITG 100,875

-100,875
CSUI

78,746 78,746

ETRD 62,800 3,846 -58,954
UBSW 34,716 55,484 20,768

MERL 46,866 5,534 -41,332
TPPM 10,000 30,000 20,000

BELL 25,000

-25,000
MACP 2,357 27,000 24,643

AIEX 10,000

-10,000
CITI 4,802 14,728 9,926

SBAR 10,000

-10,000
MACQ 4,087 14,156 10,069

JPM

1,044 1,044
MSDW 2 13,250 13,248

GS 1,352 9,965 8,613
Totals 153,986 732,955 578,969 Totals 611,858 32,889 -578,969

Duetsche Bank are again seen to be a strong accumulator during the closing auction which saw selling
dominated by retail brokers COMM and ETRD but also by ITG.
30

7.3.1.7.4 TRADING IN RESPONSE TO THE TPG BID (Feb 20, 2012)

The announcement of the TPG bid at $3 per share only resulted in a rise of 10% with the share price on Feb
20, 2012 closing at $2.83, well under the bid price on offer. The market appears to have factored in most of
the re-rating prior to the bid being announced with insiders likely to be responsible.

The bid in itself raises questions about the extent of undervaluation forced upon the company in back and
forth trading fuelled by short selling. Clearly the efficiency and fairness of the market is brought into question
by the arrival of a bid that reflects a premium of 68% to the price on Feb 16 before the re-rating occurred.

The outstanding feature of trading in response to the TPG bid was the market share of broker UBS. Standing
at 53.6% it represents one of the highest daily market shares by an individual broker across all of Year 2011.
UBS also happened to be the most prominent broker the day before the announcement was released to the
market suggesting that their trading might have been motivated inside knowledge.

Curiously DMG was noticeable by its absence in trading BBG on Feb 20 with a market share of only 0.9% and a
small amount of net selling. DMG was the second most active broker the day before the bid arrived.

LEADING BROKERS Feb 20, 2012 LEADING BROKERS BY NET BUYING & NET SELLING
UBS 7,485,891 8,527,449 1,041,558 53.6% UBS 7,485,891 8,527,449 1,041,558 50.4%
GS 2,622,680 1,515,547 -1,107,133 13.9% MERL 448,337 773,208 324,871 15.7%
COMM 1,115,388 874,960 -240,428 6.6% MSDW 254,579 467,033 212,454 10.3%
CITI 574,925 679,381 104,456 4.2% BBY 255,649 400,079 144,430 7.0%
MERL 448,337 773,208 324,871 4.1% CITI 574,925 679,381 104,456 5.1%
MSDW 254,579 467,033 212,454 2.4% MACQ 103,823 199,763 95,940 4.6%
BBY 255,649 400,079 144,430 2.2% BELL 13,000 54,000 41,000 2.0%
ETRD 261,100 222,326 -38,774 1.6% NAL 20,861 60,145 39,284 1.9%
SOSL 204,683 212,683 8,000 1.4% MACP 69,487 107,650 38,163 1.8%
CSUI 204,093 165,597 -38,496 1.2% Other 392,283 417,376 25,093 1.2%
ORDS 284,500 84,447 -200,053 1.2%

Total 2,067,249

D2MX 180,000 180,000 0 1.2%

Net Selling
SUSQ 161,020 158,948 -2,072 1.1% BROKER SELLS BUYS NET SELLS NET %
MACQ 103,823 199,763 95,940 1.0% GS 2,622,680 1,515,547 -1,107,133 53.6%
DMG 186,733 87,118 -99,615 0.9% COMM 1,115,388 874,960 -240,428 11.6%
AIEX 205,953 54,564 -151,389 0.9% ORDS 284,500 84,447 -200,053 9.7%
MACP 69,487 107,650 38,163 0.6% AIEX 205,953 54,564 -151,389 7.3%
TPPM 51,051 36,720 -14,331 0.3% DMG 186,733 87,118 -99,615 4.8%
RBSM 66,856 18,000 -48,856 0.3% RBSM 66,856 18,000 -48,856 2.4%
NAL 20,861 60,145 39,284 0.3% ETRD 261,100 222,326 -38,774 1.9%
PERSH 44,601 30,001 -14,600 0.2% CSUI 204,093 165,597 -38,496 1.9%
BELL 13,000 54,000 41,000 0.2% INST 40,151 12,000 -28,151 1.4%
INST 40,151 12,000 -28,151 0.2% WILS 26,000 0 -26,000 1.3%
Other 101,629 35,371 -66,258 0.5% Other 324,701 236,347 -88,354 4.3%
Totals 14,956,990 14,956,990 0 100%

Total -2,067,249

The trading raises many more questions than answers and requires proper investigation particularly as
Colonial First State Asset Management (CBA) and Perennial Value Management Limited (IOOF) were active in
the market with a view of a takeover likely to be behind their trading. Their activities have been noted in
Research Paper 7.1 Section 7.1.3.8.1.11 through to 7.1.3.9.4.

The issue of course is the fairness of the market for all other participants when short selling is used in
conjunction with the accumulation of shares. Such a process identifies more with market manipulation than
fair trading as the share price is either overvalued (which would justify shorting) or it is undervalued which
would justify buying. To be doing both and to be side stepping fair price discovery on covering, not only
reflects badly on the system but it is also likely to prevent the market from establishing a fair price for shares
based on genuine market forces. Dubious trading churn is a poor substitute for genuine buying and selling.

31

7.3.1.7.5 THE REJECTION OF THE TPG BID

The TPG bid was rejected by the board even after it was increased to $3.30 per share although there were still
conditions attached. The Board required a $4 starting point as a minimum with insistence by major
shareholders with blocking stakes that no offer under $4.00 would gain their support. The response by the
market was initially a price increase which was followed by flat trading for several weeks. A long price decline
then ensued from Apr 16 through to Jun 20, 2012 where prices retreated by 49%.

Price declines to Jun 20 were followed with a very substantial capital raising announced on Jun 21, 2012 which
was pitched at $1.02 per share. It suggests that the share price declines from Apr 16 may have resulted from
the trading by informed insiders. No price query accompanied the 49% loss in value.

Trading from Apr 16, 2012 through to Jun 20, 2012 shows Goldman Sachs (GS) taking over from UBS as the
prominent broker by a very wide margin with DMG and UBS prominent net sellers as GS accumulated shares.

$1.50
$1.70
$1.90
$2.10
$2.30
$2.50
$2.70
$2.90
$3.10
$3.30
TPG bid rejected
Feb 20
Feb 16
Apr 16
Jun 20
A 49% share price
decline accompanied
this period
LEADING BROKERS Apr 16, 2012 to Jun 20, 2012 LEADING BROKERS BY NET BUYING & NET SELLING
GS 11,596,097 14,685,719 3,089,622 20.3% GS 11,596,097 14,685,719 3,089,622 31.7%
UBS 9,885,716 8,719,135 -1,166,581 14.4% CIMB 338,848 1,523,430 1,184,582 12.2%
MACQ 6,391,270 5,840,472 -550,798 9.5% ORDS 545,603 1,627,630 1,082,027 11.1%
DMG 6,380,482 4,131,109 -2,249,373 8.1% CCZ 4,053 700,000 695,947 7.1%
CITI 4,033,630 3,781,296 -252,334 6.0% MERL 743,469 1,395,249 651,780 6.7%
COMM 3,080,755 3,452,538 371,783 5.1% SHAW 62,000 450,000 388,000 4.0%
MSDW 2,877,633 3,221,622 343,989 4.7% COMM 3,080,755 3,452,538 371,783 3.8%
CSUI 2,539,149 2,013,054 -526,095 3.5% MSDW 2,877,633 3,221,622 343,989 3.5%
JPM 2,482,048 1,383,488 -1,098,560 3.0% AGNT 0 285,265 285,265 2.9%
BBY 1,751,148 2,015,658 264,510 2.9% Other 6,687,433 8,328,016 1,640,583 16.9%
NAL 1,744,613 1,196,191 -548,422 2.3%

Total 9,733,578

SUSQ 1,354,055 1,437,323 83,268 2.2%

Net Selling
ITG 1,165,522 1,437,135 271,613 2.0% BROKER SELLS BUYS NET SELLS NET %
ORDS 545,603 1,627,630 1,082,027 1.7% DMG 6,380,482 4,131,109 -2,249,373 23.1%
MERL 743,469 1,395,249 651,780 1.7% UBS 9,885,716 8,719,135 -1,166,581 12.0%
TPPM 935,818 967,019 31,201 1.5% RBSM 1,257,358 133,500 -1,123,858 11.5%
CIMB 338,848 1,523,430 1,184,582 1.4% JPM 2,482,048 1,383,488 -1,098,560 11.3%
INST 1,328,955 506,365 -822,590 1.4% INST 1,328,955 506,365 -822,590 8.5%
AIEX 689,835 960,281 270,446 1.3% CLSA 763,767 141,076 -622,691 6.4%
RBSM 1,257,358 133,500 -1,123,858 1.1% MACQ 6,391,270 5,840,472 -550,798 5.7%
ETRD 639,584 447,320 -192,264 0.8% NAL 1,744,613 1,196,191 -548,422 5.6%
CLSA 763,767 141,076 -622,691 0.7% CSUI 2,539,149 2,013,054 -526,095 5.4%
MACP 375,506 367,179 -8,327 0.6% D2MX 284,205 0 -284,205 2.9%
Other 1,745,526 3,262,598 1,517,072 0.0% Other 5,652,933 4,912,528 -740,405 7.6%
Totals 64,646,387 64,646,387 0 100%

Total -9,733,578-
2,067,249

The dominant trading by Deutsche Bank and Goldman Sachs needs to be considered in context with the fact
that they were to be joint underwriters of the large capital raising pitched at $1.02 and announced on Jun 21.
BBG Chart from Feb 17, 2012 to Jun 20, 2012
Capital Raising announced on Jun 21
32

7.3.1.7.6 TRADING IN RESPONSE TO THE CAPITAL RAISING (Announced Jun 21, 2012)
On Jun 21, 2012, the company announced a fully underwritten 6 for 7 entitlement offer at $1.02 per share to
raise 225 million dollars. Goldman Sachs and Deutsche Bank were mentioned as underwriters in a subsequent
announcement advising that the offer had been completed. The dilution represented by the offer translated
to a theoretical share price of $1.45 based on the last traded price of $1.83 before the announcement. The
entitlement offer represented a very substantial discount to both the last traded share price and the
theoretical share price associated with the capital raising.
The stock closed at 95 cents upon the resumption of trading on Jun 25 with 29.9 million shares trading and
with the brokers underwriting the entitlement offer prominent in terms of their market shares (24.5%
combined) and with their status as leading net sellers (i.e.; net sales of 5.5 million shares between them).
LEADING BROKERS Jun 25, 2012 LEADING BROKERS BY NET BUYING & NET SELLING
GS 6,365,402 4,265,897 -2,099,505 17.6% COMM 2,868,594 6,670,755 3,802,161 28.5%
COMM 2,868,594 6,670,755 3,802,161 15.9% ETRD 413,599 2,950,294 2,536,695 19.0%
DMG 3,823,098 302,210 -3,520,888 6.9% UBS 519,845 2,957,758 2,437,913 18.3%
MERL 3,017,891 1,105,241 -1,912,650 6.9% AIEX 563,488 2,343,518 1,780,030 13.4%
UBS 519,845 2,957,758 2,437,913 5.8% BELL 49,400 536,400 487,000 3.7%
CIMB 3,115,000 257,985 -2,857,015 5.6% CITI 1,008,593 1,368,614 360,021 2.7%
ETRD 413,599 2,950,294 2,536,695 5.6% ORDS 0 358,271 358,271 2.7%
AIEX 563,488 2,343,518 1,780,030 4.9% PSL 224,000 548,287 324,287 2.4%
MACQ 1,269,620 1,270,703 1,083 4.3% MACP 328,160 592,062 263,902 2.0%
CITI 1,008,593 1,368,614 360,021 4.0% Other 3,754,122 4,735,168 981,046 7.4%
CSUI 1,013,622 355,663 -657,959 2.3%

Total 13,331,326

SOSL 596,485 729,909 133,424 2.2%

Net Selling
BBY 516,473 542,083 25,610 1.8% BROKER SELLS BUYS NET SELLS NET %
PERSH 450,000 568,320 118,320 1.7% DMG 3,823,098 302,210 -3,520,888 26.4%
INST 912,482 8,372 -904,110 1.5% CIMB 3,115,000 257,985 -2,857,015 21.4%
MACP 328,160 592,062 263,902 1.5% GS 6,365,402 4,265,897 -2,099,505 15.7%
SUSQ 436,952 413,536 -23,416 1.4% MERL 3,017,891 1,105,241 -1,912,650 14.3%
PSL 224,000 548,287 324,287 1.3% INST 912,482 8,372 -904,110 6.8%
D2MX 300,000 300,000 0 1.0% CSUI 1,013,622 355,663 -657,959 4.9%
BELL 49,400 536,400 487,000 1.0% CLSA 582,948 2,392 -580,556 4.4%
CLSA 582,948 2,392 -580,556 1.0% JPM 326,669 0 -326,669 2.5%
TPPM 209,810 314,425 104,615 0.9% PCAP 300,000 40,000 -260,000 2.0%
ORDS 0 358,271 358,271 0.6% MSDW 79,525 5,087 -74,438 0.6%
Other 1,349,533 1,172,300 -177,233 4.2% Other 668,557 531,021 -137,536 1.0%
Totals 29,934,995 29,934,995 0 100%

Total -13,331,326

Goldman and Deutsche Bank were joined by Commonwealth Securities as prominent brokers however trading
data suggests that the buying within COMM was again institutionally based. The following chart shows large
trading volumes that identify with institutions not small retail traders.

0
100,000
200,000
300,000
400,000
500,000
600,000
The average trade size across all buying orders by
COMM was 19,547 shares, whereas the average
volume traded per minute was 28,139 shares.
Chart showing selling volumes per minute by COMM on Jun 25, 2012 (not including auctions)
10 AM - Open 4 PM - Close
93% of all COMM buy orders
exceeded 5,000 shares in size
33

A similar situation also exists with ETRD where large sized buying orders featured prominently.

For comparison purposes, the consistently large buy trades within the two retail brokers across all trading on
Nov 25 can be compared to the minute by minute selling by the two institutional brokers Deutsche Bank (DMG)
and Goldman Sachs (GS). The different scale used below to accommodate the large institutional trades tends to
reduce the visual impact of the majority of trades which in fact are quite substantial.

0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
0
100,000
200,000
300,000
400,000
500,000
600,000
The average trade size across all buying orders
by ETRD was 13,738 shares, whereas the average
95% of all ETRD buy orders
Chart showing selling volumes per minute by ETRD on Jun 25, 2012 (not including auctions)

Chart showing selling volumes per minute by DMG from 10 am to 4 pm not including auctions
96 % of all GS sell orders
by DMG was 16,611 shares, whereas the average
Chart showing selling volumes per minute by GS from 10 am to 4 pm not including auctions
by GS was 18,430 shares, whereas the average
96.1 % of all DMG sell orders
10 AM - Open 4 PM - Close
Open Close
Open Close
34

7.3.1.7.7 TRADING LEADING UP TO TPGs SECOND TAKE OVER OFFER FOR THE COMPANY
The share price recovered to the entitlement offer price of $1.02 the 2
nd
day after trading resumed and then
proceeded to trade at a premium up until Jul 23, 2012. On July 24, 2012 on just the 2
nd
trading day after the
capital raising was completed, TPG tabled a revised offer for the company pitched at $1.45 per share.

The data highlighting the trading statistics of the leading brokers for the period Jun 26, 2012 through to Jul 23,
2012 is provided below.
LEADING BROKERS Jun 26, 2012 to July 23, 2012 LEADING BROKERS BY NET BUYING & NET SELLING
MACQ 19,216,279 19,064,338 -151,941 15.0% NAL 888,566 3,748,807 2,860,241 16.4%
COMM 16,011,888 18,529,460 2,517,572 13.5% COMM 16,011,888 18,529,460 2,517,572 14.4%
UBS 11,232,423 10,384,641 -847,782 8.5% GS 8,477,176 10,519,570 2,042,394 11.7%
GS 8,477,176 10,519,570 2,042,394 7.4% ITG 74,127 1,903,630 1,829,503 10.5%
CITI 7,961,474 8,481,920 520,446 6.5% ETRD 4,857,346 5,715,636 858,290 4.9%
SOSL 5,530,626 5,592,165 61,539 4.4% SHAW 163,000 949,576 786,576 4.5%
CIMB 6,368,127 4,537,395 -1,830,732 4.3% SBAR 59,158 859,137 799,979 4.6%
CSUI 7,976,528 2,919,185 -5,057,343 4.2% MACP 1,276,077 1,874,188 598,111 3.4%
ETRD 4,857,346 5,715,636 858,290 4.1% RBSM 1,170,896 1,731,828 560,932 3.2%
DMG 5,704,701 3,236,615 -2,468,086 3.5% Other 25,300,892 29,876,709 4,575,817 26.3%
BBY 4,391,864 4,232,669 -159,195 3.4%

Total 17,429,415

AIEX 3,027,606 3,391,880 364,274 2.5%

Net Selling
MERL 3,159,981 2,515,470 -644,511 2.2% BROKER SELLS BUYS NET SELLS NET %
MSDW 3,963,520 1,110,417 -2,853,103 2.0% CSUI 7,976,528 2,919,185 -5,057,343 29.0%
NAL 888,566 3,748,807 2,860,241 1.8% MSDW 3,963,520 1,110,417 -2,853,103 16.4%
HUB24 2,124,257 2,413,558 289,301 1.8% DMG 5,704,701 3,236,615 -2,468,086 14.2%
ORDS 1,488,677 2,093,395 604,718 1.4% JPM 2,127,419 372,921 -1,754,498 10.1%
MACP 1,276,077 1,874,188 598,111 1.2% CIMB 6,368,127 4,537,395 -1,830,732 10.5%
PERSH 1,447,695 1,579,349 131,654 1.2% EURO 1,415,000 65,000 -1,350,000 7.7%
SUSQ 1,402,629 1,507,997 105,368 1.2% UBS 11,232,423 10,384,641 -847,782 4.9%
RBSM 1,170,896 1,731,828 560,932 1.1% MERL 3,159,981 2,515,470 -644,511 3.7%
TPPM 1,369,847 1,337,571 -32,276 1.1% BBY 4,391,864 4,232,669 -159,195 0.9%
INST 1,063,634 1,604,863 541,229 1.0% MACQ 19,216,279 19,064,338 -151,941 0.9%
Other 7,320,350 9,309,250 1,988,900 0.0% Other 3,597,199 3,284,975 -312,224 1.8%
Totals 127,432,167 127,432,167 0 100%

Total -17,429,415

The leading net buyers were Nomura and Commonwealth, Goldman and ITG Australia, while Credit Suisse was
a major net seller. Morgan Stanley, Deutsche Bank and JP Morgan were also net sellers of stock. The integrity of
the market very much depends on whether the buying and selling was genuine with multiple entities involved.
If trading was to consist of large tranches of shares distributed through the market by multiple brokers but with
$1.00
$1.02
$1.04
$1.06
$1.08
$1.10
$1.12
$1.14
$1.16
$1.18
$1.20
Jun
26
Jun
27
Jun
28
Jun
29
Jul
2
Jul
3
Jul
4
Jul
5
Jul
6
Jul
9
Jul
10
Jul
11
Jul
12
Jul
13
Jul
16
Jul
17
Jul
18
Jul
19
Jul
20
Jul
23
BBG Share Price while the capital rising was being attended to
Capital raising
completed on
July 20
New TPG offer
announced on
Jul 24
Given that the new TPG offer arrived immediately the capital raising was completed, trading prior to the TPG offer
would have been subject to unfair trading activity if any insiders were positioning themselves prior to the bid.
35

minimal changes to beneficial ownership then the circumstances, given the imminent bid, might suggest insider
trading. The prominence of the usually quiet brokers ITG and NAL at a critical time also add to suspicions of
insider activity. Unfortunately there is no way of knowing the true situation without audits.

The Macquarie Group became a substantial shareholder during the period with an initial substantial
shareholder notice released to the market on Jul 25, 2012. The major source of shares for the Macquarie
Group was through placements associated with the entitlement offer.
However, the notice also detailed on-market buying and selling for members of the Macquarie Group
between March 1, 2012 and June 29, 2012 which amounted to:
Macquarie Affiliates
Sells Buys
3,000,701 6,877,735

The activity of broker Macquarie over the same period was far in excess of the buying and selling of
Macquarie Affiliates as shown below:
Broker Macquarie (MACQ)
Sells Buys
14,095,150 13,193,618

The data reveals a large amount of buying and selling on behalf of other clients that cannot be identified on
the Register or by Macquarie broker data. In fact the activities of Macquarie Affiliates would also have been
opaque to the market if it wasnt for the substantial shareholder notice.
The Macquarie example is just the tip of the iceberg concerning trading that cannot be identified. A situation
where trading volumes can be observed with no idea as to who is responsible for the buying and selling and
no idea as to how widespread their influence may be across multiple brokers, means that market
manipulation is entirely possible. Not only is it possible but it is virtually undetectable through existing market
supervision arrangements where there appears to be an acceptance of trading churn even when there arent
any beneficial changes to holdings resulting from the trading place.
Price Spikes:
The price spikes on both July 6 and July 20 attract interest particularly given the proximity to the TPG revised
bid which arrived on July 24. Again, the increases may have been influenced by insider activity. Certainly they
werent associated with company news. The leading brokers on both days are detailed below although audits
and interviews would be necessary to identify the entities responsible for the share flows.
July 6
Broker Share %

Broker Net Buys

Broker Net Sells
MACQ 26.3%

MACQ 726,871

JPM -528,409
UBS 16.8%

GS 366,098

ORDS -449,168
COMM 10.5%

UBS 310,162

MSDW -330,443
SOSL 5.9%

ETRD 252,004

RBSM -208,472

July 20
Broker Share %

Broker Net Buys

Broker Net Sells
GS 25.1%

CIMB 1,791,000

COMM -1,505,094
COMM 12.5%

DMG 943,140

NAL -633,789
CIMB 11.9%

SHAW 320,000

ORDS -322,400
DMG 8.0%

VIRTU 112,472

CITI -301,584
Macqquarie were indeed
active in the market as also
suggested by their substantial
shareholder notice
The dominance by Goldman
prior to the TPG offer has
already been noted and is
again noted by their large
market share on July 20. The
prominence of CIMB as a net
buyer is also curious.
36

7.3.1.7.8 THE SECOND TPG OFFER
As mentioned, TPG submitted a second bid for the company priced at $1.45. It was announced to the market
on Jul 24, 2012 with trading resuming at 11 am. The bid equated to the theoretical price of the company
based on the closing price before the capital raising (which was $1.83) after adding in new entitlement shares
issued at $1.02.
Trading on Jul 24 in response to the revised bid saw 45.61 million shares traded with Goldman Sachs, the most
active broker by a very wide margin. Goldman was a co-underwriter for the capital raising. Goldmans market
share was 44.9%, and it was the largest net accumulator of stock. The largest net seller was UBS with CITI,
CIMB and COMM all relatively active traders as well. Prices closed at $1.35 representing a gain of 22 cents for
the day with the close well under the $1.45 offer price.
The trading by leading brokers on Jul 24, 2012 was as follows.
LEADING BROKERS July 24, 2012 LEADING BROKERS BY NET BUYING & NET SELLING
GS 19,163,339 21,838,881 2,675,542 44.9% GS 19,163,339 21,838,881 2,675,542 32.1%
CITI 6,187,525 5,412,660 -774,865 12.7% MERL 27,913 1,495,152 1,467,239 17.6%
UBS 5,021,772 1,889,045 -3,132,727 7.6% NAL 34,500 753,257 718,757 8.6%
CIMB 2,812,126 2,077,826 -734,300 5.3% TIMR 19,787 570,407 550,620 6.6%
COMM 1,489,508 2,031,232 541,724 3.9% COMM 1,489,508 2,031,232 541,724 6.5%
ETRD 1,254,710 1,015,372 -239,338 2.5% SHAW 0 456,800 456,800 5.5%
JPM 1,540,516 644,708 -895,808 2.4% PERSH 497,550 855,000 357,450 4.3%
DMG 991,485 1,124,400 132,915 2.3% MSDW 12,795 364,101 351,306 4.2%
MACP 1,239,183 640,833 -598,350 2.1% ORDS 44,000 260,400 216,400 2.6%
MERL 27,913 1,495,152 1,467,239 1.7% Other 3,125,372 4,126,335 1,000,963 12.0%
AIEX 869,293 525,857 -343,436 1.5%

Total 8,336,801

PERSH 497,550 855,000 357,450 1.5%

Net Selling
MACQ 537,911 630,273 92,362 1.3% BROKER SELLS BUYS NET SELLS NET %
SUSQ 667,772 505,127 -162,645 1.3% UBS 5,021,772 1,889,045 -3,132,727 37.6%
SOSL 527,625 537,625 10,000 1.2% JPM 1,540,516 644,708 -895,808 10.7%
BBY 477,782 550,014 72,232 1.1% CITI 6,187,525 5,412,660 -774,865 9.3%
NAL 34,500 753,257 718,757 0.9% CIMB 2,812,126 2,077,826 -734,300 8.8%
ITG 710,566 0 -710,566 0.8% ITG 710,566 0 -710,566 8.5%
HUB24 204,176 411,205 207,029 0.7% MACP 1,239,183 640,833 -598,350 7.2%
TIMR 19,787 570,407 550,620 0.6% CSUI 519,712 23,571 -496,141 6.0%
RBSM 239,000 320,137 81,137 0.6% AIEX 869,293 525,857 -343,436 4.1%
CSUI 519,712 23,571 -496,141 0.6% ETRD 1,254,710 1,015,372 -239,338 2.9%
SHAW 0 456,800 456,800 0.5% SUSQ 667,772 505,127 -162,645 2.0%
Other 571,467 1,295,836 724,369 0.0% Other 367,279 118,654 -248,625 3.0%
Totals 45,605,218 45,605,218 0 100%

Total -8,336,801

Goldmans leading market share of 44.9% was bolstered by a surprisingly high level of cross trades. They
represented 37.5% of the entire days trading volume.
GS crossings totalled 17.08 million shares and equated to 89.2% of all of their selling (i.e. 19.16 million shares)
and 37.5% of all of their buying (i.e.; 21.84 million shares)
Goldman were active traders immediately trading commenced after the TPG announcement with 11.56
million buys and 8.84 million sells in the first hour. Their trading activity during this period included large
volumes of cross trades (8.21 million) to the extent that crossings represented 71% of their buying and 93% of
their selling during the first hour. One of the riddles surrounding institutional trading are the large crossings
often put through the market at critical times, yet at other times dedicated sellers and dedicated buyers
choose to deal through the market without any attempt to deal expeditiously through crossings. The patterns
suggest institutional trading agendas and a compromised market rather than genuine trading activity.
37

Goldman Sachs (GS) crossings during the first hour of trade were as follows.
TIME PRICE VOLUME AMOUNT BUYER SELLER TYPE
11:00:53 135.5 11,859 $16,069 GS GS XT
11:00:57 135.5 10,982 $14,881 GS GS XT
11:01:14 135 500,000 $675,000 GS GS XT
11:01:40 135 500,000 $675,000 GS GS XT
11:02:13 134.5 500,000 $672,500 GS GS XT
11:02:13 134.5 -500,000 -$672,500 GS GS XT
11:02:19 135 500,000 $675,000 GS GS XT
11:03:15 133.5 500,000 $667,500 GS GS XT
11:05:14 132 500,000 $660,000 GS GS XT
11:05:35 132 9,737 $12,853 GS GS XT
11:06:13 131.5 500,000 $657,500 GS GS XT
11:09:28 130 500,000 $650,000 GS GS XT
11:10:13 130 500,000 $650,000 GS GS XT
11:10:26 130 500,000 $650,000 GS GS XT
11:15:09 130 1,000,000 $1,300,000 GS GS XT
11:16:21 130 500,000 $650,000 GS GS XT
11:20:34 131.5 100,000 $131,500 GS GS XT
11:24:55 131 250,000 $327,500 GS GS XT
11:25:09 131 50,000 $65,500 GS GS XT
11:25:09 131 -50,000 -$65,500 GS GS XT
11:25:36 131 46,826 $61,342 GS GS XT
11:25:36 131 -46,826 -$61,342 GS GS XT
11:29:54 132 50,000 $66,000 GS GS XT
11:30:40 132 500,000 $660,000 GS GS XT
11:32:48 132 250,000 $330,000 GS GS XT
11:41:54 133 1,058 $1,407 GS GS XT
11:41:56 133 25,000 $33,250 GS GS XT
11:42:41 133 1,259 $1,674 GS GS XT
11:45:36 133 1,251 $1,664 GS GS XT
11:46:31 133 1,187 $1,579 GS GS XT
12:01:04 132 1,000,000 $1,320,000 GS GS XT
Total 8,212,333

Share Price Chart, Jul 24, 2012
The share price opened at a high for the day during the opening auction which factored the TPG bid into the
share price. It then drifted lower in initial trading before recovering and proceeding to trade in a fairly narrow
band for the remainder of the day. The movements are captured in the chart below.

124
126
128
130
132
134
136
138
BBG Share Price Chart July 24, 2012
The prolific trading/crossing activity suggests prior knowledge of the TPG bid and an action plan that was
swiftly put into place as soon as the announcement was released to the market. Of course if Goldman Sachs
new about the bid then it also puts into question their trading prior to the bid arriving, and raises questions
about the trading of others who might also have known.

Price (cents)
Open Close
38

The prominent brokers during the initial down trend (circled above) were as follows.

BROKER SELLS BUYS NET BUYS

BROKER SELLS BUYS NET SELLS
SHAW 0 350,000 350,000

CITI 1,027,375 573,563 -453,812
GS 3,144,015 3,481,961 337,946

CIMB 671,140 337,000 -334,140
MERL 0 133,009 133,009

ETRD 265,974 15,998 -249,976
BBY 20,000 125,000 105,000

UBSW 520,402 275,332 -245,070
RBSM 0 101,000 101,000

CSUI 153,611 10,725 -142,886
COMM 145,174 244,475 99,301

SUSQ 107,095 58,303 -48,792
MSDW 0 76,282 76,282

SOSL 109,000 70,000 -39,000
MACP 15,450 91,000 75,550

SBAR 27,500 0 -27,500
AIEX 127,264 168,271 41,007

MACQ 72,626 51,020 -21,606
Other 53,965 297,652 243,687

Other 0 0 0

Total 1,562,782

Total -1,562,782

SHAW and GS were the leading accumulators of stock into the net selling of CITI and CIMB. Much of
Goldmans activity was made up of crossings.
The brokers who contributed to Down Ticks both as sellers and as buyers during the first 8 minutes of trading
were also as follows.
BROKER % of DT SELLS

BROKER % of DT BUYS
CITI 21.7%

GS 27.5%
GS 13.0%

COMM 13.0%
ETRD 10.1%

UBSW 5.8%
UBSW 10.1%

CITI 4.3%
SUSQ 8.7%

CSUI 4.3%
CIMB 7.2%

MSDW 4.3%
SOSL 7.2%

NAL 4.3%

DOWN TICK TRENDS ACROSS ALL OF JULY 24 TRADING
The trends concerning Down Ticks across all trading on July 24 are summarized below. The table contrasts
broker Down Tick involvement as sellers (and buyers) with their overall involvement in the market as sellers
(and buyers)
Sellers of Down Ticks Buyers of Down Ticks
BROKER DTs
% of DT
SELLS
% of All
SELLS
BROKER DTs
% of DT
BUYS
% of All
BUYS
CITI 81 26.1% 13.6%

DMG 60 19.4% 2.5%
UBS 55 17.7% 11.0%

NAL 53 17.1% 1.7%
GS 41 13.2% 42.0%

GS 35 11.3% 47.9%
JPM 16 5.2% 3.4%

UBS 25 8.1% 4.1%
CSUI 15 4.8% 1.1%

CITI 19 6.1% 11.9%
DMG 12 3.9% 2.2%

COMM 17 5.5% 4.5%
MACQ 11 3.5% 1.2%

ETRD 12 3.9% 2.2%
SOSL 11 3.5% 1.2%

MSDW 11 3.5% 0.8%
CIMB 10 3.2% 6.2%

AIEX 9 2.9% 1.2%
COMM 10 3.2% 3.3%

MERL 9 2.9% 3.3%

The tendency by brokers to push the market downwards can be gauged by their involvement in trades that
lead to DTs versus their involvement with selling generally. CITI and UBS in particular showed a marked
tendency towards accepting lower prices as sellers. Similarly, DMG, NAL and UBS tended to facilitate DTs as
buyers at levels in excess of their buying in the market generally much of it not involving Down Ticks in price.
CITI were the leading brokers who
forced Down Ticks in price, while
GS were the leading buyers of
trades asociated with a fall in price
39

7.3.1.7.9 THE TRADING IN RESPONSE TO TGPs BID AND A SECOND BID BY BAIN CAPITAL
On July 27, TGP was granted authority to access Billabong accounts to conduct Due Diligence so that their
offer could be formalized and made unconditional. On Sept 6, a second bid for the company was received
from Bain Capital who offered a similar proposal to that of TPG at $1.45 per share. The Bain Capital Group was
also given authority to conduct Due Diligence.
Trading from Jul 25 (immediately after the TPG proposal) through to Sept 19, 2012 was a period where the
two entities bidding for control of the company were doing their Due Diligence. The trading statistics of
leading brokers during that time were as follows.
LEADING BROKERS July 25, 2012 to Sept 19, 2012 LEADING BROKERS BY NET BUYING & NET SELLING
UBS 26,903,227 21,947,803 -4,955,424 14.2% DMG 7,339,555 14,009,000 6,669,445 24.3%
GS 17,409,324 20,895,563 3,486,239 11.2% MACQ 6,589,699 12,513,368 5,923,669 21.6%
MSDW 15,921,033 20,090,390 4,169,357 10.5% MSDW 15,921,033 20,090,390 4,169,357 15.2%
CSUI 14,698,857 14,279,842 -419,015 8.4% GS 17,409,324 20,895,563 3,486,239 12.7%
JPM 12,995,085 15,133,055 2,137,970 8.2% JPM 12,995,085 15,133,055 2,137,970 7.8%
CITI 15,549,821 11,660,107 -3,889,714 7.9% NAL 430,835 2,262,080 1,831,245 6.7%
DMG 7,339,555 14,009,000 6,669,445 6.2% SHAW 727,300 1,590,461 863,161 3.2%
COMM 11,466,247 9,788,247 -1,678,000 6.2% EVAN 292,730 1,121,010 828,280 3.0%
MACQ 6,589,699 12,513,368 5,923,669 5.6% Other 3,887,318 5,372,528 1,485,210 5.4%
MERL 8,928,694 4,190,758 -4,737,936 3.8%

Total 27,394,576

ETRD 4,240,962 3,563,863 -677,099 2.3%

Net Selling
SUSQ 2,521,456 2,371,761 -149,695 1.4% BROKER SELLS BUYS NET SELLS NET %
AIEX 2,128,303 2,056,292 -72,011 1.2% UBS 26,903,227 21,947,803 -4,955,424 18.1%
BBY 1,699,256 1,556,710 -142,546 0.9% MERL 8,928,694 4,190,758 -4,737,936 17.3%
MACP 2,603,985 361,570 -2,242,415 0.9% CITI 15,549,821 11,660,107 -3,889,714 14.2%
TPPM 1,398,005 1,408,608 10,603 0.8% MACP 2,603,985 361,570 -2,242,415 8.2%
NAL 430,835 2,262,080 1,831,245 0.8% COMM 11,466,247 9,788,247 -1,678,000 6.1%
VIRT 1,151,632 1,356,324 204,692 0.7% CIMB 1,979,168 352,410 -1,626,758 5.9%
CIMB 1,979,168 352,410 -1,626,758 0.7% INST 886,417 13,543 -872,874 3.2%
ITG 1,325,438 993,677 -331,761 0.7% ORDS 1,025,415 195,027 -830,388 3.0%
SHAW 727,300 1,590,461 863,161 0.7% BTIG 1,395,462 671,504 -723,958 2.6%
Other 13,579,352 9,205,345 -4,374,007 6.7% Other 35,255,919 29,418,810 -5,837,109 21.3%
Total 171,587,234 171,587,234 0 100%

Total -27,394,576

The net selling by UBS, MERL and CITI and the net purchases by DMG, MACQ and MSDW once again has
resulted in the selling by one group of sophisticated investors ending up in the hands of another group of
sophisticated investors but where the profitable trades of some are at the expense of loss making trades by
others. The patterns are replicated throughout the entire period of price declines again suggesting that the
real losers have been pension funds whose capital has been eroded by loss making trades and whose holdings
have been devalued by the lending of their shares to facilitate short selling. While the difficulties faced by the
company are well known, losses have been magnified by trading behaviours and large profits appear to have
been extracted from the market at the expense of funds under management and retail investors who trade at
a disadvantage in a market that represents an un-level playing field.

$1.15
$1.20
$1.25
$1.30
$1.35
$1.40
$1.45
$1.50
The rise corresponded to
the arrival of the Bain
Capital offer on Sept 6
giving the semblance of a
possible bidding contest
for control of Billabong
Jul 25
Sept 19
Sept 6
Trading in BBG while rival bidders were doing their Due Diligence
NEWS HEADLINE: Bain triggers hopes for Billabong bidding war - Financial Review Sept 7, 2012

The period saw a 23 million reduction in open short positions
perhaps facilitated through the availability of cheap placement stock.
40

7.3.1.7.10 THE WITHDRAWAL OF BAIN CAPITALS OFFER
The Bain Capital bid was officially withdrawn on Sept 20, 2012 leaving TPG as the sole bidder. The withdrawal
led to an immediate drop in the share price from $1.43 to around $1.32 where it continued to trade for
almost two weeks. Given the information leaks concerning the company, it raises questions about who may
have known what was happening with the Bain deliberations and traded accordingly.

The leading brokers in trading for the period Sept 20 to Oct 3 were as follows:

LEADING BROKERS Sept 20, 2012 to Oct 3, 2012 LEADING BROKERS BY NET BUYING & NET SELLING
BROKER SELLS BUYS NET
SHARE %
BROKER SELLS BUYS NET BUYS NET %
UBS 5,182,184 5,645,505 463,321 18.0% JPM 2,731,411 7,459,344 4,727,933 37.2%
JPM 2,731,411 7,459,344 4,727,933 16.8% CITI 1,442,864 5,310,481 3,867,617 30.4%
CITI 1,442,864 5,310,481 3,867,617 11.2% DMG 541,098 2,696,031 2,154,933 16.9%
MSDW 4,198,382 995,841 -3,202,541 8.6% PETRA 0 1,000,000 1,000,000 7.9%
GS 2,213,506 1,304,445 -909,061 5.9% UBS 5,182,184 5,645,505 463,321 3.6%
CSUI 2,117,441 1,199,939 -917,502 5.5% ETRD 164,598 392,583 227,985 1.8%
DMG 541,098 2,696,031 2,154,933 5.4% BTIG 0 125,736 125,736 1.0%
MACQ 2,260,137 317,135 -1,943,002 4.3% GETCO 50,098 142,544 92,446 0.7%
MERL 1,459,102 240,870 -1,218,232 2.8% HUB24 0 20,000 20,000 0.2%
COMM 871,940 661,399 -210,541 2.5% Other 35,943 82,123 46,180 0.4%
SUSQ 762,043 738,090 -23,953 2.5%

Total 12,726,151

ORDS 1,180,888 200,000 -980,888 2.3%

Net Selling
AIEX 580,439 447,726 -132,713 1.7% BROKER SELLS BUYS NET SELLS NET %
BBY 582,040 441,426 -140,614 1.7% MSDW 4,198,382 995,841 -3,202,541 25.2%
PETRA 0 1,000,000 1,000,000 1.7% MACQ 2,260,137 317,135 -1,943,002 15.3%
TPPM 526,246 465,486 -60,760 1.6% MERL 1,459,102 240,870 -1,218,232 9.6%
CIMB 875,661 0 -875,661 1.4% ORDS 1,180,888 200,000 -980,888 7.7%
INV 735,714 0 -735,714 1.2% CSUI 2,117,441 1,199,939 -917,502 7.2%
MACP 553,177 35,000 -518,177 1.0% GS 2,213,506 1,304,445 -909,061 7.1%
ETRD 164,598 392,583 227,985 0.9% CIMB 875,661 0 -875,661 6.9%
VIRT 343,309 81,356 -261,953 0.7% INV 735,714 0 -735,714 5.8%
SHAW 194,000 50,000 -144,000 0.4% MACP 553,177 35,000 -518,177 4.1%
RBSM 159,257 43,610 -115,647 0.3% VIRT 343,309 81,356 -261,953 2.1%
Other 528,005 477,175 -50,830 0.0% Other 4,117,929 2,954,509 -1,163,420 9.1%
Totals 30,203,442 30,203,442 0 100%

Total -12,726,151

$1.15
$1.20
$1.25
$1.30
$1.35
$1.40
$1.45
$1.50
Sep
5
Sep
6
Sep
7
Sep
10
Sep
11
Sep
12
Sep
13
Sep
14
Sep
17
Sep
18
Sep
19
Sep
20
Sep
21
Sep
24
Sep
25
Sep
26
Sep
27
Sep
28
Oct
1
Oct
2
Oct
3
High levels of dominance over trading particularly if entities were trading cooperatively within the institutional brokers
Price fall corresponding to the
departure of BAIN as a bidder
Price rise accompanying the
arrival of the BAIN offer
corresponding to the
departure of Bain as a
bidder
Share price activity surrounding the failed Bain Capital takeover bid
41

7.3.1.7.11 MEDIA LEAK: OCT 24, 2012
A newspaper report about TPG also intending to withdraw their bid was published on Oct 4. Steep falls in the
share price to around $1.08 immediately followed. The article is likely to be the result of the leaking of
information by insiders but was immediately rebuked by the company who claimed that the TPG offer was
still on the table and still going through due process.
The leading brokers in trading on Oct 4 were as follows.
LEADING BROKERS Oct 4, 201 LEADING BROKERS BY NET BUYING & NET SELLING
MSDW 2,219,812 170,538 -2,049,274 14.5% PETRA 0 1,000,000 1,000,000 24.0%
UBS 598,052 1,062,085 464,033 9.8% ETRD 340,580 941,464 600,884 14.4%
CITI 839,513 715,313 -124,200 9.0% ITG 298,058 828,492 530,434 12.7%
ETRD 340,580 941,464 600,884 7.7% UBS 598,052 1,062,085 464,033 11.1%
DMG 905,735 170,676 -735,059 6.8% AIEX 29,450 312,365 282,915 6.8%
ITG 298,058 828,492 530,434 6.6% COMM 260,279 512,186 251,907 6.0%
GS 950,974 119,819 -831,155 6.1% TPPM 166,594 298,558 131,964 3.2%
PETRA 0 1,000,000 1,000,000 5.6% Other 1,206,475 2,113,757 907,282 21.8%
SUSQ 348,672 426,794 78,122 4.5%

Total 4,169,419

COMM 260,279 512,186 251,907 4.4%

Net Selling
JPM 534,766 222,430 -312,336 4.4% BROKER SELLS BUYS NET SELLS NET %
MACQ 309,674 404,908 95,234 4.1% MSDW 2,219,812 170,538 -2,049,274 25.2%
TPPM 166,594 298,558 131,964 2.7% GS 950,974 119,819 -831,155 15.3%
AIEX 29,450 312,365 282,915 2.0% DMG 905,735 170,676 -735,059 9.6%
CSUI 141,284 142,373 1,089 1.6% JPM 534,766 222,430 -312,336 7.1%
BRLL 76,500 136,500 60,000 1.2% CITI 839,513 715,313 -124,200 6.9%
NAL 39,668 133,034 93,366 1.1% CIMB 52,522 0 -52,522 5.8%
RBSA 30,000 143,010 113,010 1.0% INST 34,465 0 -34,465 4.1%
VIRT 50,033 102,932 52,899 0.9% SHAW 30,000 20,000 -10,000 2.1%
Other 350,369 646,536 296,167 0.8% Other 22,738 2,330 -20,408 9.1%
Totals 8,490,013 8,490,013 0 100%

Total -4,169,419

The interesting feature of trading on Oct 4 was the arrival of Petra Capital as a buyer of 1 million shares at a
time the company was under a cloud of uncertainty. Petra Capital had traded practically unnoticed up until
that time as shown by a market share for all of 2012 of just 0.2%.
A broker suddenly becoming active before withdrawing back into the shadows raises questions about who it
was acting for with an uncharacteristically dominant profile on a crucial days trading. The same could be said
for ETRD and ITG with their buying likely to be representing institutional trades rather than retail purchases.
The news release and the companys response resulted in an extremely uncertain trading environment with
the company going into a trading halt while it clarified the situation. Conflicting reports are highlighted by the
following media links:
TPG reconsiders its Billabong bid - Financial Review
TPG bid still on the table: Billabong - Sydney Morning Herald
Billabong hoses down rumours it will be dumped by TPG smartcompany.com.au

Trading was surrounded by much uncertainty in the days that followed with media insisting that TPG was in
fact pulling out despite the companys advice to the market.
Oct 6- Sydney Morning Herald
BILLABONG may insist that TPG is still interested in buying the company but investors have decided otherwise
with the embattled company's shares falling yesterday to an even steeper discount to the private equity firm's
$1.45 indicative offer.
42

Trading data for between Oct 5 and Oct 11, 2012 is summarized below which raises queries in relation to
retail traders. In particular, was retail activity the result of small investors being encouraged into buying stock
by assurances that TPG hadnt withdrawn? Or was the buying just the usual pass-the-parcel exercise
between institutional selling from UBS, GS and MSDW and institutional buying that was camouflaged within
the retail brokers?

The questions are important as if institutions or sophisticated investors were responsible then the patterns of
trading may suggest market rigging and may require proper clarifications through audits to remove doubts or
to act on any unfair trading practices that may have occurred.

LEADING BROKERS Oct 5, 2012 to Oct 11, 2012 LEADING BROKERS BY NET BUYING & NET SELLING
COMM 2,836,273 6,561,594 3,725,321 17.0% COMM 2,836,273 6,561,594 3,725,321 37.3%
UBS 4,944,627 3,113,868 -1,830,759 14.4% ETRD 1,224,960 3,250,617 2,025,657 20.3%
CITI 3,189,272 2,460,112 -729,160 10.2% DMG 459,880 1,346,882 887,002 8.9%
GS 3,318,050 1,435,698 -1,882,352 8.4% CSUI 295,959 1,015,752 719,793 7.2%
ETRD 1,224,960 3,250,617 2,025,657 8.1% AIEX 333,633 999,776 666,143 6.7%
MSDW 2,663,512 1,120,032 -1,543,480 6.8% MACP 102,268 460,600 358,332 3.6%
MACQ 1,144,691 1,118,804 -25,887 4.0% SBAR 37,223 280,000 242,777 2.4%
DMG 459,880 1,346,882 887,002 3.2% VIRT 277,432 526,923 249,491 2.5%
MERL 1,242,862 469,714 -773,148 3.1% SOSL 367,416 526,800 159,384 1.6%
SUSQ 615,581 739,694 124,113 2.4% Other 1,623,443 2,568,389 944,946 9.5%
AIEX 333,633 999,776 666,143 2.4%

Total 9,978,846

CSUI 295,959 1,015,752 719,793 2.3%

Net Selling
SHAW 1,130,154 35,000 -1,095,154 2.0% BROKER SELLS BUYS NET SELLS NET %
SOSL 367,416 526,800 159,384 1.6% UBS 4,944,627 3,113,868 -1,830,759 18.3%
BBY 528,042 320,542 -207,500 1.5% GS 3,318,050 1,435,698 -1,882,352 18.9%
VIRT 277,432 526,923 249,491 1.4% MSDW 2,663,512 1,120,032 -1,543,480 15.5%
TPPM 337,756 386,934 49,178 1.3% SHAW 1,130,154 35,000 -1,095,154 11.0%
PERSH 660,000 0 -660,000 1.2% MERL 1,242,862 469,714 -773,148 7.7%
JPM 583,753 40,370 -543,383 1.1% CITI 3,189,272 2,460,112 -729,160 7.3%
MACP 102,268 460,600 358,332 1.0% PERSH 660,000 0 -660,000 6.6%
PETRA 500,000 0 -500,000 0.9% JPM 583,753 40,370 -543,383 5.4%
RBSA 262,500 209,500 -53,000 0.9% PETRA 500,000 0 -500,000 5.0%
CMCS 91,417 235,807 144,390 0.6% BBY 528,042 320,542 -207,500 2.1%
Other 775,935 1,510,954 735,019 0.0% Other 1,567,214 1,353,304 -213,910 2.1%
Totals 27,885,973 27,885,973 0 100%

Total -9,978,846

The chart shows share price levels from Oct 3, 2012, immediately prior to the media report up until Oct 11,
2012 with prices trading in the band $1.06 down to $1.00 in the days following the report.

$0.90
$0.95
$1.00
$1.05
$1.10
$1.15
$1.20
$1.25
$1.30
$1.35
Oct 3 Oct 4 Oct 5 Oct 8 Oct 9 Oct 10 Oct 11
Falls associated with leaks
to the media published on
Oct 4, 2012
43

7.3.1.7.12 THE WITHDRAWAL OF TPG: Oct 12, 2012
The accuracy of media reporting on Oct 4 about TPG withdrawing their interest in Billabong was confirmed on
Oct 12, 2012 when it was announced that TPG had officially declined interest in taking over the company.
The situation again points to the leaking of confidential information to the media prior to Oct 4 and raises the
spectre of insider trading on news not available to the rest of the market, and indeed the company itself.
The situation adds to the dealings taking place behind the scenes that do not reflect well on the integrity and
fairness of the Billabong market. Such dealings include:
The selling down of the share price in Nov, 2011 well prior to an earnings downgrade announced on
Dec 19;
The selling down of the share price following the Dec 19 earnings report to levels, which in the light of
TPGs initial $3.00 offer for the company, suggest extreme undervaluation;
The selling down of the share price to undervalued levels following the entitlement offer as again
suggested by TPGs revised offer of $1.45 when the share price was trading just above $1.00;
The possibility that the Bain Capital bid was perhaps just another sideshow to further destabilize the
company by raising expectations initially and then lowering them as they withdrew shortly afterwards;
Trading by entities that may have been privy to some or all of the major events that have taken place
and who may have positioned themselves in the market accordingly. The patterns of share flows back
and forth between sophisticated investors certainly suggest collusion and the facilitation of each
others trading strategies perhaps at the expense of funds under management;
The timing of the TPG revised immediately after the capital raising was bedded down is unlikely to be a
chance occurrence. More likely it was planned well in advance perhaps with knowledge of what was
playing out from within the company. Their pre-emptive move to deal with shares accumulated by
Colonial First State and Perennial Value Management certainly suggest market involvement and long
term planning initiatives involving key players.
Trading activity and corporate developments also need to be considered in relation to the banking interests
who are likely to have pressured the Board because of the companys large debt. Banks would have benefited
from:
A likely reduction in Billabongs indebtedness resulting from the sale of the companys Nixon brand
(which was possibly one of the companys best assets), and;
The repayment of debt via a very substantial capital raising involving $35 million dollars put up by
retail investors, the value of which has since halved.

$0.80
$0.90
$1.00
$1.10
$1.20
$1.30
$1.40
$1.50
Sep
19
Sep
20
Sep
21
Sep
24
Sep
25
Sep
26
Sep
27
Sep
28
Oct
1
Oct
2
Oct
3
Oct
4
Oct
5
Oct
8
Oct
9
Oct
10
Oct
11
Oct
12
The withdrawal of
TPG as announced
in the press
TPG officially
withdraws
Bain Capital
withdraws
BBG Share Price Sep/Oct 2012
44

The leading brokers in trading on Oct 12, 2012 are summarized in the table. JP Morgan were the prominent
broker by market share with the three retail brokers Commonwealth Securities, ETRD and AIEX being leading
net buyers as net selling was supplied by institutional brokers including Merrill Lynch, Goldman Sachs, UBS,
Credit Suisse and Morgan Stanley. It is unlikely that retail investors would have been buying with such
enthusiasm, and more likely that large tranches of shares were sold and bought by sophisticated investors in
another pass-the-parcel exercise on a critical days trading.
LEADING BROKERS Oct 12, 2012 LEADING BROKERS BY NET BUYING & NET SELLING
JPM 11,114,343 11,029,573 -84,770 31.5% COMM 3,600,007 6,133,314 2,533,307 32.4%
COMM 3,600,007 6,133,314 2,533,307 13.9% ETRD 840,589 2,198,301 1,357,712 17.3%
CSUI 3,309,123 2,365,890 -943,233 8.1% AIEX 124,183 972,559 848,376 10.8%
UBS 3,173,957 1,499,410 -1,674,547 6.7% DMG 655,854 1,340,069 684,215 8.7%
MERL 3,093,194 1,258,507 -1,834,687 6.2% NATO 104,372 556,501 452,129 5.8%
CITI 1,929,708 1,982,838 53,130 5.6% RBSM 80,000 491,200 411,200 5.3%
ETRD 840,589 2,198,301 1,357,712 4.3% MACP 10,000 327,500 317,500 4.1%
GS 2,244,660 559,237 -1,685,423 4.0% ORDS 0 282,000 282,000 3.6%
DMG 655,854 1,340,069 684,215 2.9% BTIG 0 225,000 225,000 2.9%
MACQ 908,608 829,798 -78,810 2.5% Other 3,656,723 4,375,709 718,986 9.2%
SOSL 479,243 621,863 142,620 1.6%

Total 7,830,425

AIEX 124,183 972,559 848,376 1.6%

Net Selling
MSDW 918,493 132,045 -786,448 1.5% BROKER SELLS BUYS NET SELLS NET %
BBY 449,002 470,002 21,000 1.3% MERL 3,093,194 1,258,507 -1,834,687 23.4%
NATO 104,372 556,501 452,129 0.9% GS 2,244,660 559,237 -1,685,423 21.5%
RBSM 80,000 491,200 411,200 0.8% UBS 3,173,957 1,499,410 -1,674,547 21.4%
CMCS 278,235 218,872 -59,363 0.7% CSUI 3,309,123 2,365,890 -943,233 12.0%
SBAR 455,000 24,000 -431,000 0.7% MSDW 918,493 132,045 -786,448 10.0%
TPPM 108,650 274,050 165,400 0.5% SBAR 455,000 24,000 -431,000 5.5%
MACP 10,000 327,500 317,500 0.5% VIRT 189,512 60,945 -128,567 1.6%
PERSH 150,850 171,000 20,150 0.5% JPM 11,114,343 11,029,573 -84,770 1.1%
BRLL 145,000 145,000 0 0.4% MACQ 908,608 829,798 -78,810 1.0%
BELL 100,000 183,000 83,000 0.4% CMCS 278,235 218,872 -59,363 0.8%
Other 764,145 1,252,687 488,542 0.0% Other 280,363 156,786 -123,577 1.6%
Totals 35,037,216 35,037,216 0 100%

Total -7,830,425

The chart shows the trade by trade share price fluctuations throughout the course of the day with the price at
the opening (85 cents) heavily influenced by the selling of 1.29 million shares during the opening auction by
Merrill Lynch. MERL sales represented 51% of all opening auction selling. At the commencement of trade the
price was rapidly taken down to 82 cents before recovering and then trading in an extremely tight band (i.e.
between 83.5 and 84.5 cents) for most of the day. The volume of shares changing hands within the circled
area of the chart was around 27.4 million, however crossings accounted for more than half of the buying and
selling (i.e. around 16.4 million shares).

81.0
82.0
83.0
84.0
85.0
86.0
87.0
88.0
BBG Share Price Trend on Oct 12, 2012
Flat trading after
initial fluctuations
PRICE (cents)
45

The share price being locked into a straightjacket following significant news, but only after a price was
established immediately trading commenced is hardly the sort of trading response expected from genuine
buyers and sellers acting independently. Such is the plight of retail investors in the market with lots of
individual small orders no match for the coordinated approach to trading adopted by sophisticated investors
that is implemented through trading algorithms.
The dominant market share by JP Morgan (i.e.; 34.1%) was primarily due to extensive crossing activity which
involved 10 million cross trades occurring between 12:04 PM and 12:07 PM. The XT trades represented 90%
of all their buying and selling for the day. It means that brokers such as Commonwealth, UBS and Credit Suisse
were more influential with their trading throughout the course of the day.
The large amount of net buying occurring through COMM and to a lesser extent through ETRD on Oct 12 is
similar to what occurred on Oct 4, following press reports that indicated TPG would not proceed with their
takeover plans. Retail broker buying was pronounced on both occasions however it is unlikely that it was retail
investors who were responsible for the trading.
Analysis of COMM buying on Oct 12 clearly suggests that it was sophisticated investors who were active.
Effectively their buying picked up the net selling flowing from MERL, GS, UBS, CSUI and MSDW but only after
algorithms from a mix of brokers ensured that the selling passed through other brokers on its way to COMM
and ETRD.
The minute by minute purchase volumes by Commonwealth Securities clients are shown below with the
buying pulses clearly more aligned with the sort of trading expected by sophisticated investors.

By comparison, sophisticated investors selling through UBS had an average transaction size of 5,557 shares
and that takes into account all of the small parcel sells generated by algorithms. Their average volume per
minute was similar to COMM at 25,165 shares. Also, 93.6% of all minute by minute selling volumes by UBS
was above 10,000 shares in size as was COMMs buying volumes
The purposeful capturing of sophisticated investor selling by sophisticated investor purchases together with
the majority of trading representing cross trades casts a highly dubious profile to the trading taking place on
Oct 12.
0
50,000
100,000
150,000
200,000
250,000
300,000
94 % of all minute by minute purchase
volumes exceeded 10,000 shares.
Chart showing purchase volumes per minute by COMM in trading on Oct 12, 2012
The average trade size across all buying orders by
COMM was 11,310 shares, whereas the average
VOLUMES
46

7.3.1.7.13 TRADING FOLLOWING TPGs DEPARTURE UP UNTIL THE PAUL NAUDE/SYCAMORE BID
Following TPGs advice that it wouldnt be proceeding with its bid for the company, Director Paul Naude
advised the company on Nov 19, 2012 that he would step down as Director and investigate the possibility of
putting forward his own bid for control of Billabong.
An offer for control of the company at $1.10 per share was announced to the market on Dec 19, 2012. The
proposal involved a consortium comprising Paul Naude and Sycamore Partners as a cornerstone equity
investor, with Bank of America Merrill Lynch as lead debt financier.
Trading from the time TPG withdrew their bid up until the Paul Naude offer was announced to the market is
summarized in the tables below. Again the buying of sophisticated investors looks to have taken place
through COMM, GS, MERL and a number of other brokers while consistent selling was again associated with
institutional brokers such as CITI, DMG and MSDW.

LEADING BROKERS Oct 15, 2012 to Dec 19, 2012 LEADING BROKERS BY NET BUYING & NET SELLING
COMM 25,653,695 30,423,169 4,769,474 14.4% COMM 25,653,695 30,423,169 4,769,474 19.1%
UBS 25,458,557 23,623,079 -1,835,478 12.6% GS 6,682,729 11,347,855 4,665,126 18.6%
CITI 25,790,073 21,362,282 -4,427,791 12.1% MERL 713,607 3,273,065 2,559,458 10.2%
DMG 14,254,685 10,445,640 -3,809,045 6.3% BTIG 715,000 3,215,000 2,500,000 10.0%
MSDW 13,783,446 10,311,946 -3,471,500 6.2% MACP 1,604,215 4,035,039 2,430,824 9.7%
MACQ 11,413,888 9,705,176 -1,708,712 5.4% CSUI 4,044,684 5,883,676 1,838,992 7.4%
SOSL 11,144,135 9,073,231 -2,070,904 5.2% AIEX 3,544,386 5,084,465 1,540,079 6.2%
GS 6,682,729 11,347,855 4,665,126 4.6% PERSH 944,319 1,661,520 717,201 2.9%
ETRD 8,250,481 8,948,746 698,265 4.4% ORDS 516,198 1,230,000 713,802 2.9%
BBY 6,838,961 4,887,836 -1,951,125 3.0% Other 18,035,621 21,317,692 3,282,071 13.1%
CSUI 4,044,684 5,883,676 1,838,992 2.6%

Total 25,017,027

AIEX 3,544,386 5,084,465 1,540,079 2.2%

Net Selling
SUSQ 4,274,814 4,108,339 -166,475 2.2% BROKER SELLS BUYS NET SELLS NET %
JPM 4,257,110 3,518,279 -738,831 2.0% CITI 25,790,073 21,362,282 -4,427,791 17.7%
MACP 1,604,215 4,035,039 2,430,824 1.4% DMG 14,254,685 10,445,640 -3,809,045 15.2%
ITG 2,733,438 2,447,513 -285,925 1.3% MSDW 13,783,446 10,311,946 -3,471,500 13.9%
INST 2,260,946 2,317,290 56,344 1.2% SOSL 11,144,135 9,073,231 -2,070,904 8.3%
RBSM 2,315,700 1,789,061 -526,639 1.1% BBY 6,838,961 4,887,836 -1,951,125 7.8%
VIRT 2,183,967 1,825,785 -358,182 1.0% UBS 25,458,557 23,623,079 -1,835,478 7.3%
MERL 713,607 3,273,065 2,559,458 1.0% MACQ 11,413,888 9,705,176 -1,708,712 6.8%
BTIG 715,000 3,215,000 2,500,000 1.0% CLSA 1,203,404 89,436 -1,113,968 4.5%
TPPM 1,515,132 1,663,905 148,773 0.8% NAL 1,452,788 532,976 -919,812 3.7%
NATO 1,327,821 1,668,113 340,292 0.8% JPM 4,257,110 3,518,279 -738,831 3.0%
Other 13,735,863 13,538,843 -197,020 7.0% Other 16,445,832 13,475,971 -2,969,861 11.9%
Totals 194,497,333 194,497,333 0 100%

Total -25,017,027

Given the difficulties faced by the company operationally and a heavily sold down share price it is difficult to
fathom the justification for the high volumes of trading churn put through the market which totalled 194.5
million shares. Perhaps part of it was to extract profits from hapless retail investors who had retained their
faith in the Billabong story and part of it was to simply earn commissions from funds under management.
However, in a zero sum game between major players, there would be just as many losing trades as winning
trades. Perhaps the key to trading has again been the extraction of profits from funds under management on
a rotation basis where certain brokers were set up to win at times and to lose at other times, and in the
meantime there was the constant flow of commissions accruing from dealing on the accounts? Such a
scenario paints a poor picture of the funds management industry but in the absence of logical explanations to
explain trading behaviours such alternative thinking cannot be avoided.

The other query regarding institutional trading is the issue of whether their trading is done on the basis of
controlling the market by tweaking trading algorithms to deliver whatever trading agendas they may have, and
then allocating trades after they are netted at the end of the day. Such an arrangement would enable winning
trades to be allocated separately to losing trades with not too much imagination needed to figure where the
majority of losing trades might end up.
47

The share price trend over the period is summarized below with a price dip accompanying the bid by the Paul
Naude consortium. Trading swings from 95 cents to 75 cents between trading partners were certainly possible
particularly if a degree of collusion was in place between entities selling short and entities buying the shares
sold short. Again, such an arrangement would ensure that any short covering could take place seamlessly
either through the market with strategic crossings, through the market with strategic trades distributed
across multiple brokers, through dark pool transactions, or alternatively, in mutually acceptable dealings
taking place off-market. Certainly there have been no difficulties with the management of securities lending
and short selling exposures which suggests high levels of cooperation possibly bordering on collusion.

7.3.1.7.14 THE ALTAMONT CAPITAL, VF CORPORATION BID: Jan 14, 2013
Just as the TPG bid circa July 24, 2012 attracted a competing offer from Bain Capital, so too did the Paul
Naude bid with a matching offer put forward by a consortium comprising Altamont Capital Partners and VF
Corporation Group as announced to the market on Jan 14, 2013.
The proposal was accepted by the Billabong Board and the consortium was invited to participate in a formal
process to establish the best offer for the control of Billabong which could then be presented to shareholders.
The additional offer sparked a revival of interest in the company as indicated in the following chart from just
after the Paul Naude bid was announced (Dec 20) to just after the rival bid was announced (Jan 17)

$0.70
$0.75
$0.80
$0.85
$0.90
$0.95
$1.00
$0.70
$0.75
$0.80
$0.85
$0.90
$0.95
$1.00
$1.05
Dec 19
Oct 15
Nov 16
Oct 26
BBG Share Price from Oct 15, 2012 to Dec 20, 2012
Dec 20
Jan 17
Jan 14
Dec 20
BBG Share Price from Dec 20, 2012 to Jan 17, 2013
Price fall in
response to the
Paul Naude bid
48

Trading from Dec 20, 2012 through to Jan 14, 2013 is summarized in the table. Citigroup and Commonwealth
Securities were equally dominant in terms of market share however COMM continued to be a strong net
accumulator of stock, again with sophisticated investors likely to be responsible, not retail traders. Strong net
selling was distributed between institutional brokers JP Morgan, Goldman Sachs, BTIG Australia and Deutsche
Bank with all four also likely to be dealing on behalf of sophisticated investors.
The trading by Petra Capital and BTIG Australia attracts particular interest as churn trading has become the
norm yet their activity is diametrically opposite with one an exclusive seller and the other an exclusive buyer
of substantial parcels of shares. - Bell Securities was predominantly a seller as well.
Audits are the only way of establishing if there are any unfair relationships between brokers and if entities are
spreading their influence across multiple brokers to unfairly influence the market.
LEADING BROKERS Dec 20, 2012 to Jan 14, 2013 LEADING BROKERS BY NET BUYING & NET SELLING
CITI 12,501,071 11,008,310 -1,492,761 17.9% COMM 8,969,976 13,830,871 4,860,895 26.9%
COMM 8,969,976 13,830,871 4,860,895 17.5% BELL 172,500 3,349,378 3,176,878 17.6%
UBS 3,581,090 4,209,856 628,766 6.0% PETRA 0 2,000,000 2,000,000 11.1%
DMG 4,241,156 2,438,157 -1,802,999 5.2% ETRD 2,501,037 3,658,965 1,157,928 6.4%
MACQ 3,098,864 3,451,962 353,098 4.9% AIEX 1,207,549 2,226,927 1,019,378 5.6%
ETRD 2,501,037 3,658,965 1,157,928 4.8% MACP 493,725 1,269,209 775,484 4.3%
GS 5,023,047 1,186,946 -3,836,101 4.7% SOSL 2,087,871 2,835,780 747,909 4.1%
JPM 5,187,714 75,763 -5,111,951 3.9% UBS 3,581,090 4,209,856 628,766 3.5%
SOSL 2,087,871 2,835,780 747,909 3.9% CSUI 1,152,163 1,686,245 534,082 3.0%
BELL 172,500 3,349,378 3,176,878 2.8% Other 8,792,232 11,938,584 3,146,352 17.4%
BBY 1,783,799 1,773,690 -10,109 2.8%

Total 18,047,672

AIEX 1,207,549 2,226,927 1,019,378 2.6%

Net Selling
MSDW 2,067,790 1,345,158 -722,632 2.6% BROKER SELLS BUYS NET SELLS NET %
CSUI 1,152,163 1,686,245 534,082 2.2% JPM 5,187,714 75,763 -5,111,951 28.3%
BTIG 2,450,000 0 -2,450,000 1.9% GS 5,023,047 1,186,946 -3,836,101 21.3%
PETRA 0 2,000,000 2,000,000 1.5% BTIG 2,450,000 0 -2,450,000 13.6%
MACP 493,725 1,269,209 775,484 1.4% DMG 4,241,156 2,438,157 -1,802,999 10.0%
NATO 600,630 1,048,636 448,006 1.3% CITI 12,501,071 11,008,310 -1,492,761 8.3%
VIRT 638,979 892,566 253,587 1.2% CIMB 1,000,000 0 -1,000,000 5.5%
MERL 512,763 899,860 387,097 1.1% WILS 1,000,000 0 -1,000,000 5.5%
CMCS 614,142 629,660 15,518 1.0% MSDW 2,067,790 1,345,158 -722,632 4.0%
SBAR 318,590 816,600 498,010 0.9% CLSA 401,070 55,793 -345,277 1.9%
PERSH 563,000 564,000 1,000 0.9% SHAW 320,000 80,000 -240,000 1.3%
Other 5,423,942 3,992,859 -1,431,083 0.0% Other 2,041,407 1,995,456 -45,951 0.3%
Totals 65,191,398 65,191,398 0 100%

Total -18,047,672

7.3.1.7.15 TRADING FOLLOWING THE ALTAMONT CAPITAL, VF CORPORATION BID:

Apart from a brief period trading above $1 the share price quickly resumed its downward trend finishing just
above 80 cents on Mar 19,2012. The market certainly lacked conviction that the two competing bids would be
able to deliver an offer of $1.10 or better.The market was heavily influenced by corporate trading agendas.

$0.80
$0.85
$0.90
$0.95
$1.00
$1.05
BBG Share Price - Period Jan 15, 2013 to March 19, 2013
49

The leading brokers during the period Jan 15, 2013 to Mar 19, 2013 are listed below. Citigroup and
Commonwealth Securities were again equally dominant in terms of market share although Instinet and Bell
Securities together with UBS were the major net buyers of shares. Both Bell Securities and Instinet hadnt
been prominent with their trading previously so it would be of particular interest to establish who they were
actually dealing for. It would help to assess the extent of corporate influence and who the major trading
entities were. Such information would help in deciding the fairness (or otherwise) of the market.
The prominent net sellers were Morgan Stanley, Goldman Sachs, Deutsche Bank and Citigroup, who were
joined by Virtu Financial, Ord Minnett and Petra Capital.
The major retail brokers COMM, ETRD and AIEX were all associated with high levels of churn that is likely to
be the result of trading by institutions rather than retail investors. Audits would clarify the issue.
LEADING BROKERS Jan 15, 2013 to Mar 20, 2013 LEADING BROKERS BY NET BUYING & NET SELLING
COMM 16,326,963 15,708,000 -618,963 12.4% INST 836,305 3,962,583 3,126,278 20.9%
CITI 16,128,494 14,773,690 -1,354,804 12.0% BELL 4,112,659 7,207,082 3,094,423 20.7%
UBS 14,305,002 16,392,901 2,087,899 11.9% UBS 14,305,002 16,392,901 2,087,899 13.9%
DMG 10,778,449 9,403,282 -1,375,167 7.8% NATO 1,887,750 3,269,732 1,381,982 9.2%
MACQ 7,150,305 7,014,281 -136,024 5.5% ITG 691,438 1,750,068 1,058,630 7.1%
MSDW 7,547,382 4,714,250 -2,833,132 4.8% MACP 2,049,493 2,777,129 727,636 4.9%
BELL 4,112,659 7,207,082 3,094,423 4.4% TIMR 177,998 800,978 622,980 4.2%
ETRD 5,232,154 5,546,252 314,098 4.2% SBAR 1,220,965 1,794,395 573,430 3.8%
GS 5,269,245 3,677,702 -1,591,543 3.5% MERL 758,547 1,301,800 543,253 3.6%
BBY 4,408,828 4,010,699 -398,129 3.3% Other 13,130,668 14,884,315 1,753,647 11.7%
CSUI 3,490,731 4,030,542 539,811 2.9%

Total 14,970,158

SOSL 3,868,945 3,383,254 -485,691 2.8%

Net Selling
AIEX 2,960,093 2,908,112 -51,981 2.3% BROKER SELLS BUYS NET SELLS NET %
NATO 1,887,750 3,269,732 1,381,982 2.0% MSDW 7,547,382 4,714,250 -2,833,132 18.9%
SUSQ 2,577,125 2,492,049 -85,076 2.0% GS 5,269,245 3,677,702 -1,591,543 10.6%
MACP 2,049,493 2,777,129 727,636 1.9% DMG 10,778,449 9,403,282 -1,375,167 9.2%
INST 836,305 3,962,583 3,126,278 1.9% CITI 16,128,494 14,773,690 -1,354,804 9.1%
VIRT 2,559,748 1,369,035 -1,190,713 1.5% VIRT 2,559,748 1,369,035 -1,190,713 8.0%
CLSA 1,760,476 1,873,207 112,731 1.4% ORDS 1,581,147 540,427 -1,040,720 7.0%
SBAR 1,220,965 1,794,395 573,430 1.2% PETRA 1,000,000 0 -1,000,000 6.7%
ITG 691,438 1,750,068 1,058,630 0.9% CIMB 1,437,941 695,648 -742,293 5.0%
CIMB 1,437,941 695,648 -742,293 0.8% COMM 16,326,963 15,708,000 -618,963 4.1%
ORDS 1,581,147 540,427 -1,040,720 0.8% RBSM 1,143,980 545,525 -598,455 4.0%
Other 10,683,415 9,570,733 -1,112,682 7.9% Other 25,920,879 23,296,511 -2,624,368 17.5%
Totals 128,865,053 128,865,053 0 100%

Total -14,970,158

7.3.1.7.16 FURTHER MEDIA SPECULATION: March 21, 2013
The share price slumped 20% on March 21, 2013 to 63 cents in response to media reports that raised doubts
about the bidding process being successful at the $1.10 offer price originally offered by both consortiums. The
article suggested that it was likely that at least one bid would be withdrawn. There were also references to
Merrill Lynch producing broker research suggesting that a 58 cent valuation would be likely if both bids failed
to materialize. Interestingly, Merrill Lynch connections were also part of the Altamont/VF Consortium. The
company requested a trading halt to clarify matters after which it confirmed that the bidding process was still
in place despite media reports to the contrary. Links to some of the March 21, 2013 media articles are as
follows:
Billabong slumps to new low - Sydney Morning Herald
Billabong shares dumped - The Motley Fool
Billabong in the dark about share plunge ABC News
Billabong suitors still in the race - The Australian
50

The share price action, the media reports, the Merrill Lynch involvement and the companys explanation
meant that the market was trading in a severely uncertain state both March 21 and in the days that followed
after the trading halt. If the media reports were well informed then so too should have been the company
along with interested stake holders and investors. The fact that they werent meant that trading during the
period was likely to be severely compromised.
Trading on March 21 saw over 9 million shares change hands before the trading halt was put in place.
Goldman Sachs and UBS were active sellers in the opening auction being responsible for 46% and 23% of the
753,984 shares that changed hands. The buying was spread amongst multiple brokers with CITI, COMM,
MACQ and MERL each being responsible for around 15% of the auction.
Trading for March 21 saw price falls from the commencement of trade which accelerated to a low of 63 cents
before recovering to around 70 cents by the time the trading halt was granted by the ASX after a request from
the company. It is not known how long it took for the ASX to respond to the companys request.

7.3.1.7.17.1 MARCH 21 BROKER DATA FOR THE PERIOD 10:00 AM to 11:22 AM
Share price falls in the first 82 minutes of trading were asociated with trading volumes of 4.22 million shares.
The trading featured substantial net selling by UBS , CITI and RBS Securities and substantial net buying
through the retail brokers COMM, AIEX and ETRD, accompanied by DMG and BBY.
BROKER SELLS BUYS NET BUYS BROKER SELLS BUYS NET SELLS
COMM 394,431 1,003,316 608,885

UBS 1,185,924 704,344 -481,580
DMG 207,935 570,447 362,512

CITI 634,698 223,141 -411,557
AIEX 22,385 261,304 238,919

RBSA 305,000

-305,000
ETRD 22,041 210,172 188,131

MACQ 286,558 79,224 -207,334
BBY 50,000 195,006 145,006

CSUI 208,673 20,177 -188,496
MACP 19,856 98,181 78,325

INST 95,781

-95,781
PERSH

60,000 60,000

GS 293,109 206,261 -86,848
GETCO 23,179 77,541 54,362

ITG 46,200

-46,200
CMCS 6,172 45,400 39,228

MSDW 46,169 13,814 -32,355
TIMB 500 36,505 36,005

SBAR 15,000

-15,000
Other 223,871 294,939 71,068

Other 136,151 123,861 -12,290
Totals 970,370 2,852,811 1,882,441 Totals 3,253,263 1,370,822 -1,882,441
60
65
70
75
80
85
BBG Share Price Trend March 21, 2013
Special Crossings
Cents
11:22 AM
11:53 AM
10:00 AM
51

The share price falls once again have the appearance of corporate manoeuvring where retail brokers have
been used to camouflage the buying by corporate entities that has accompanied their strategic selling
through institutional brokers. Audits would establish if there were any changes of beneficial ownership
associated with the transactions and then proper judgements could be made about the fairness of trading
during that time.
CROSSINGS : Period 10:00 AM to 11:22 AM
The other feature of early trading that stands out are the large volume of broker crossings that took place
during the commencement of trading for the day. Of the 4.22 million shares traded 30% were crossings. The
details are as follows.

Cross Trades
Broker Volume % of XTs
UBS 670,532 51%
COMM 240,108 18%
DMG 69,397 5%
CITI 68,713 5%

7.3.1.7.17.2 COMMENT
The realities asociated with trading data point more to a carefully organized take down by sophisticated
investors than rational decisions to sell out of Billabong by genuine investors. The trading data needs to be
considered when assessing media commentary regarding the share price collapse as summarized in the
following extracts:
LINK: http://www.fool.com.au/2013/03/21/billabong-shares-dumped/
Rumours appear to be doing the rounds that at least one of those bids may have been withdrawn, which
may have contributed to Billabongs shares falling.
Research by a Credit Suisse analyst is also doing the rounds suggesting that should both bids be
withdrawn, shares in Billabong would be worth around 59 cents.
While final bids are due next week, the Australian Financial Review reports that sources close to both
bidders expect two proposals to be submitted next Thursday. Whether those bids will still be for $1.10
remains to be seen, but the slide in Billabongs share price over the past few weeks suggest final bids
could be lower

LINK: http://www.smh.com.au/business/billabong-shares-slump-before-trading-halt-20130321-2gham.html
Billabong has gone into a trading halt after shares crashed to a record low, suggesting the company will
not get a formal takeover offer from either of its private equity suitors.
Analysts had expected the two parties come back with lower offers around the 90 cents mark but the
current price reflects a scenario where both parties walk away from Billabong.
Credit Suisse recently reassessed the companys valuation on the basis that bids fail to emerge and gave
the company a weighted valuation of 59 cents per share.
While UBS where active as both sellers and buyers almost all of their
buying was represented by internal crossings they put through the
market as XT trades.
Also, apart from the crossings between its own clients, UBS sold an
aditional 224,183 shares through centre point crossings which
involved a range of other brokers. It means that only 26% of its
selling represented sales put through the market
52

LINK: http://www.abc.net.au/news/2013-03-21/billabong-shares-on-trading-halt-after-price-plunge/4586422
Billabong is currently the target of two potential takeover offers, and it is believed the price plunge was
related to market speculation that one or both of those bids may be pulled.
However, Billabong has issued a statement today saying both bids are still on the table.
The company says it is still in the dark about what exactly triggered the sudden share price collapse, but
referred to a media and a broker report as possible catalysts.
The Credit Suisse report reiterated a $1.10 share price target to reflect the likelihood that one of the two
bids pitched at that level would proceed. However, should both bidders pull out, the broker says Billabong
would be worth only 59 cents a share.
It also warns that should the surfwear company's earnings keep falling further, then its shares may end up
being worth nothing.
http://au.finance.yahoo.com/news/billabong-shares-dumped-040410242.html
Billabong is currently the subject of two takeover bids for $1.10, with US-based retailer VF Corp and
private equity firm Altamont Capital Partners on one side, up against Billabong director Paul Naude and
Sycamore Partners. Rumours appear to be doing the rounds that at least one of those bids may have been
withdrawn, which may have contributed to Billabongs shares falling.
Additionally, research by a Credit Suisse analyst is doing the rounds suggesting that should both bids be
withdrawn, shares in Billabong would be worth around 59 cents.
While final bids are due next week, the Australian Financial Review reports that sources close to both
bidders expect two proposals to be submitted next Thursday. Whether those bids will still be for $1.10
remains to be seen, but the slide in Billabongs share price over the past few weeks suggest final bids
could be lower.
Media commentary, when considered against the realities of trading data, suggests that the share price
collapse was more likely to be a stage managed event by sophisticated investors than a genuine response by
investors to media speculation. Certainly the leaking of confidential information to the media and the
publishing of that information as rumours doing the rounds is not responsible reporting. Combined with the
fact that the company was adamant that both parties were still fully involved in the bidding process and that
there were no developments that could be reported on adds further suspicions as to the motives of media
personnel and the motives of those who have been active in the market.
There is no question that the media speculation and the company response provided the perfect foil for the
share price to be pushed much lower. The situation attracts further suspicion because of the precedents
established on October 4, 2012 and by the share price declines forced on the market prior to the June 2012
entitlement offer. On Oct 4 confidential information was also leaked to the media where it was published and
led to substantial share price falls despite the company reassuring the market that the media reports were
not correct.
The entire situation has the appearance of one or both consortiums seeking to take control of the company
but at much lower prices than originally offered. The leaking of confidential information may have been part
of a strategy to prepare the market for lower offers. The likelihood of lower offers gaining acceptance by
major shareholders would certainly be enhanced if prices were forced to well below $1.10 and maintained at
that level while future negotiations took place.
53

On the other hand, if the selling (and buying) on March 21 was genuine and not orchestrated, there should
have been changes to beneficial ownership resulting from the trading that took place. The matter could
readily be clarified by an audit of broker and client accounts and a check on how the register was impacted by
the trading activity associated with March 21, 2013.

The situation reflects badly on the integrity of the system and the inadequacies of regulation as no queries
have been raised or action taken to address any of the anomalies that permeate Billabong trading data.
7.3.1.7.17.3 MARCH 21 BROKER DATA FOR THE PERIOD 11:22 AM to 11:53 AM

The modest share price recovery that commenced at 11.22 AM on March 21 involved a further 4.22 million
shares trading before a trading halt was put in place. UBS continued with its net selling established earlier but
was also accompanied by Macquarie. CITI and RBS Securities, who were prominent net sellers during the
share price slump, ceased their selling as the recovery took place.

Commonwealth Securities was headed by Goldman Sachs as the major net buyer. Goldmans buying is in
contrast to its heavy selling in the opening auction and their churning of holdings during the price falls in
earlier trading. Their trading patterns draw attention to what they might have known about how the day
would unfold, particularly as they had been close to the company previously as a co- underwriter for the
entitlement offer in June/July 2012 and an active trader throughout the period being reviewed.

The leading brokers by net buying and net selling during the recovery phase are listed in the table.
BROKER SELLS BUYS NET BUYS BROKER SELLS BUYS NET SELLS
GS 10,000 1,026,810 1,016,810

UBSW 1,425,824 503,147 -922,677
COMM 342,539 641,099 298,560

MACQ 655,080 165,547 -489,533
AIEX 2,909 194,522 191,613

DMG 257,503 171,099 -86,404
ETRD 60,999 201,423 140,424

BBY 195,598 114,773 -80,825
JPM

60,003 60,003

CITI 593,198 515,605 -77,593
PERSH 129,596 184,336 54,740

CSUI 146,598 71,669 -74,929
VIRT 76,381 116,635 40,254

INST 64,843 4,500 -60,343
MACP 5,000 45,000 40,000

SUSQ 176,057 117,306 -58,751
Other 722 51,622 50,900

Other 81,249 39,000 -42,249
Totals 628,146 2,521,450 1,893,304

Totals 3,595,950 1,702,646 -1,893,304

BBG Share Price March 21, 2013

60
65
70
75
80
85
The key questions that needs to be resolved are:
1. Were the the media reports legitimate and/or responsible and resulted in price falls by genuine
investors who were unnerved by what might lie ahead for Billabong and so disposed of their holdings?
or
2. Was the publishing of confidential information supplied by insiders part of a deliberate share price
takedown planned and executed by market professionals under the cover of negative news provided by
the media?

Cents
Trading Halt
54

7.3.1.7.17.4 ALL TRADING ON MARCH 21, 2013
The trading data covering all trading on March 21, 2013 is summarized below.
It is of particular interest that 80% of all net selling was associated with 4 institutional brokers and around
80% of the net buying was associated with retail brokers in conjunction with Goldman Sachs. If the buying
amongst retail brokers was actually done on behalf of sophisticated investors then the case for an
orchestrated take down of the share price would be significantly strengthened. The nature of trading amongst
sophisticated investors and whether it was genuine or not could be readily assessed from the trading records
of brokers and their clients pertaining to the first 82 minutes of trading on March 21.
LEADING BROKERS Mar 21, 2013 LEADING BROKERS BY NET BUYING & NET SELLING
UBS 2,784,554 1,225,836 -1,558,718 21.9% COMM 746,770 1,761,963 1,015,193 28.9%
COMM 746,770 1,761,963 1,015,193 13.7% GS 648,022 1,266,765 618,743 17.6%
CITI 1,241,903 861,734 -380,169 11.2% AIEX 25,294 459,987 434,693 12.4%
GS 648,022 1,266,765 618,743 10.4% ETRD 83,040 432,009 348,969 9.9%
DMG 500,042 801,344 301,302 7.2% DMG 500,042 801,344 301,302 8.6%
MACQ 941,638 358,392 -583,246 6.9% MACP 24,856 143,181 118,325 3.4%
SUSQ 372,406 323,576 -48,830 3.8% JPM 0 115,614 115,614 3.3%
BBY 245,598 309,779 64,181 3.0% PERSH 129,596 244,336 114,740 3.3%
CSUI 448,029 94,946 -353,083 2.9% NATO 0 95,149 95,149 2.7%
ETRD 83,040 432,009 348,969 2.8% Other 591,523 947,082 355,559 10.1%
AIEX 25,294 459,987 434,693 2.6%

Total 3,518,287

VIRT 212,532 240,496 27,964 2.4%

Net Selling
PERSH 129,596 244,336 114,740 1.9% BROKER SELLS BUYS NET SELLS NET %
RBSA 305,000 0 -305,000 1.8% UBS 2,784,554 1,225,836 -1,558,718 44.3%
MACP 24,856 143,181 118,325 0.9% MACQ 941,638 358,392 -583,246 16.6%
MSDW 94,042 68,325 -25,717 0.9% CITI 1,241,903 861,734 -380,169 10.8%
INST 160,624 4,500 -156,124 0.9% CSUI 448,029 94,946 -353,083 10.0%
MERL 29,819 109,548 79,729 0.8% RBSA 305,000 0 -305,000 8.7%
JPM 0 115,614 115,614 0.6% INST 160,624 4,500 -156,124 4.4%
BRLL 60,001 60,001 0 0.6% ITG 92,400 0 -92,400 2.6%
GETCO 23,179 77,541 54,362 0.6% SUSQ 372,406 323,576 -48,830 1.4%
NATO 0 95,149 95,149 0.6% MSDW 94,042 68,325 -25,717 0.7%
ITG 92,400 0 -92,400 0.5% SBAR 15,000 0 -15,000 0.4%
Other 35,394 149,717 114,323 0.0% Other 0 0 0 0.0%
Totals 9,204,739 9,204,739 0 100%

Total -3,518,287

7.3.1.7.18 TRADING FOLLOWING MARCH 21, 2013
The events of March 21 set the scene for trading in the days that followed. The chart shows trading from
March 20 up until the Easter break which takes in the March 21 fall, the slight recovery on March 22 and the
flat trading over the next few days.

$0.62
$0.64
$0.66
$0.68
$0.70
$0.72
$0.74
$0.76
$0.78
$0.80
$0.82
Mar 20 Mar 21 Mar 22 Mar 25 Mar 26 Mar 27 Mar 28
55

7.3.1.7.19 FRIDAY MARCH 22, 2013 TRADING:
Trading on March 22 saw a 6 cent recovery in price and showed Goldman Sachs once again dominating
trading with a market share of 35.4%. However cross trades by Goldman represented 89% of their total
buying and 80% of their selling so that their influence in the market over the course of the day wouldnt have
been as prominent as their market share suggests. The circumstances of such high volume cross trades which
have been a regular feature of trading by leading brokers perhaps require investigation given the dubious
trading history of the company.
Volumes were similar to the previous days trading with the share price opening at 73 cents, trading to 76
cents before falling back and recovering to close at 75 cents. Net selling and net buying was extremely
subdued with churning of holdings the main feature of trading.
LEADING BROKERS Mar 22, 2013 LEADING BROKERS BY NET BUYING & NET SELLING
GS 4,058,348 3,613,333 -445,015 35.4% ETRD 251,125 497,721 246,596 15.6%
COMM 1,049,364 1,136,668 87,304 10.3% NATO 56,999 255,396 198,397 12.5%
CITI 658,248 675,464 17,216 6.3% JPM 0 143,284 143,284 9.1%
MACQ 553,472 648,218 94,746 5.7% BELL 0 140,295 140,295 8.9%
AIEX 486,831 561,727 74,896 5.0% TIMR 0 133,903 133,903 8.5%
SOSL 437,457 504,756 67,299 4.5% CSUI 105,833 218,423 112,590 7.1%
ETRD 251,125 497,721 246,596 3.5% MACQ 553,472 648,218 94,746 6.0%
UBS 308,136 372,254 64,118 3.2% COMM 1,049,364 1,136,668 87,304 5.5%
INST 641,603 4,280 -637,323 3.0% AIEX 486,831 561,727 74,896 4.7%
BBY 345,100 293,374 -51,726 3.0% Other 2,326,738 2,675,801 349,063 22.1%
SUSQ 279,904 350,293 70,389 2.9%

Total 1,581,074

DMG 271,022 290,989 19,967 2.7%

Net Selling
VIRT 276,224 194,332 -81,892 2.2% BROKER SELLS BUYS NET SELLS NET %
PSL 200,000 200,000 0 1.9% INST 641,603 4,280 -637,323 40.3%
CSUI 105,833 218,423 112,590 1.5% GS 4,058,348 3,613,333 -445,015 28.1%
NATO 56,999 255,396 198,397 1.5% MSDW 179,209 57,448 -121,761 7.7%
MSDW 179,209 57,448 -121,761 1.1% RBSM 125,000 25,000 -100,000 6.3%
PERSH 121,394 65,000 -56,394 0.9% VIRT 276,224 194,332 -81,892 5.2%
CMCS 87,000 93,250 6,250 0.8% MERL 87,207 12,748 -74,459 4.7%
RBSM 125,000 25,000 -100,000 0.7% PERSH 121,394 65,000 -56,394 3.6%
BELL 0 140,295 140,295 0.7% BBY 345,100 293,374 -51,726 3.3%
JPM 0 143,284 143,284 0.6% ABNA 9,506 0 -9,506 0.6%
TIMR 0 133,903 133,903 0.6% CCZ 1,440 0 -1,440 0.1%
Other 184,682 201,543 16,861 0.0% Other 1,558 0 -1,558 0.1%
Totals 10,676,951 10,676,951 0 100%

Total -1,581,074

7.3.1.7.20 TRADING FROM MARCH 25 TO MARCH 28, 2013
The trading over the next 4 days leading to the Easter break saw combined volumes of 9.38 million shares
which were similar to March 22 (9.20 million) but with a marked difference in net selling and net buying.
Goldman were again the leading broker by market share and also led the selling with 2.66 million shares net
sold , compared to Deutsche bank with 1.088 million of net sales and Merrill with 212,207.
The net buying was again led by Commonwealth Securities (1.458 million net purchases) again suggesting that
dealings of sophisticated investors were responsible, not retail investors. The patterns of share flows
therefore suggest institutional control over trading and the constraining of prices while bids for the control of
the company were being considered by the two consortiums in conjunction with the Billabong Board.

56

The trading details for the 4 day period were as follows.
LEADING BROKERS Mar 25,26 ,27 & 28, 2013 LEADING BROKERS BY NET BUYING & NET SELLING
GS 3,008,754 348,006 -2,660,748 18.0% COMM 683,990 2,141,805 1,457,815 32.0%
COMM 683,990 2,141,805 1,457,815 15.1% SOSL 30,000 530,000 500,000 11.0%
DMG 1,474,635 386,046 -1,088,589 9.8% RBSA 0 365,000 365,000 8.0%
MACQ 621,544 476,656 -144,888 5.8% ETRD 217,601 542,384 324,783 7.1%
UBS 398,059 685,774 287,715 5.7% INST 173,344 479,507 306,163 6.7%
CITI 566,244 498,129 -68,115 5.7% UBS 398,059 685,774 287,715 6.3%
MSDW 424,695 503,372 78,677 4.9% NATO 9,158 204,638 195,480 4.3%
BBY 467,752 370,545 -97,207 4.5% AIEX 175,482 339,667 164,185 3.6%
ETRD 217,601 542,384 324,783 4.0% MACP 39,700 203,000 163,300 3.6%
INST 173,344 479,507 306,163 3.5% Other 668,456 1,460,355 791,899 17.4%
SOSL 30,000 530,000 500,000 3.0%

Total 4,556,340

AIEX 175,482 339,667 164,185 2.7%

Net Selling
SUSQ 256,903 216,461 -40,442 2.5% BROKER SELLS BUYS NET SELLS NET %
RBSA 0 365,000 365,000 1.9% GS 3,008,754 348,006 -2,660,748 58.4%
MERL 262,102 49,895 -212,207 1.6% DMG 1,474,635 386,046 -1,088,589 23.9%
VIRT 102,685 182,594 79,909 1.5% MERL 262,102 49,895 -212,207 4.7%
MACP 39,700 203,000 163,300 1.3% MACQ 621,544 476,656 -144,888 3.2%
NATO 9,158 204,638 195,480 1.1% BBY 467,752 370,545 -97,207 2.1%
SBAR 145,659 50,000 -95,659 1.0% SBAR 145,659 50,000 -95,659 2.1%
GETCO 25,843 104,189 78,346 0.7% BELL 73,376 0 -73,376 1.6%
TIMR 44,000 86,434 42,434 0.7% CITI 566,244 498,129 -68,115 1.5%
PERSH 10,000 114,643 104,643 0.6% SUSQ 256,903 216,461 -40,442 0.9%
CMCS 18,445 90,795 72,350 0.6% CSUI 50,365 25,789 -24,576 0.5%
Other 229,430 416,485 187,055 0.0% Other 62,901 12,368 -50,533 1.1%
Totals 9,386,025 9,386,025 0 100%

Total -4,556,340

7.3.1.7.21 PROCESS UPDATE APRIL 9, 2013
On April 9, Billabong announced acceptance of a proposal by Paul Naude and Sycamore at a reduced offer
price of 60 cents and entered into a 10 day full exclusivity agreement for the consortium to be able to finalize
its debt financing arrangements and make an unconditional offer for control of the company.
The offer validates the media reports on March 21 which referred to the possibility of reduced bids from the
consortiums bidding for control of Billabong. It also demonstrates that certain insiders who leaked
information to the press were very well informed.
Events concerning the reduced offer also demonstrate that trading in Billabong has been compromised in a
major way, particularly as anyone who took notice of company clarifications that refuted press reports, and
then traded accordingly, would have ended up being grossly misled. It marks the second time that insider
leaks have resulted in a misinformed market because of damaging press reports and company denials.
The situation raises acute concerns for the integrity and fairness of the market. It is clearly not the role of
informed insiders to break critical news through leaks to the media nor should it be the role of media to help
disseminate information of a confidential nature that isnt authorized by the company. Rather, it is the
responsibility of the company to release company developments as they occur through official ASX channels.
The reduced offer however does increase the likelihood that the share price slump on March 21, 2013 was an
orchestrated event where leaks to the media coincided with very specific trading strategies in the market to
force prices lower. Lower prices would potentially make a substantially reduced bid (i.e.; from $1.10 to 60
cents) more acceptable to the company and its stakeholders. If such an interpretation is correct then the
entire saga can be simply summarized as market manipulation of a type that is allowed to take place on the
57

ASX. Despite the concerns expressed by the company in its March 21 announcement, regulators appear to
have shown little or no interest in what has transpired. Yet millions of dollars have been stripped from the
portfolios of genuine investors with the share price almost halving since March 20, 2013 precipitated by the
leaking of inside information to the press.
Critically, the central issue is not the difficulties faced by Billabong with its profitability concerns as they are
well understood and there should be no arguments about the share price reflecting BBGs earnings and
earnings potential. Rather, it is the methods engaged in the market and in the media to unfairly control
trading outcomes. The losers are invariably the retail and private investors who have been misled and
disadvantaged in the market through an un-level playing field, along with those individuals with portfolios
under management whose shares have been sacrificed to facilitate short selling. The winners have been the
institutions that have been on the winning side of short selling trades and entities that stand a better chance
of being able to seize control of cheap assets. The demise of Billabong as a company trading in its own right
now appears almost inevitable.
The trading on the resumption of trade on April 10 after an extended trading halt, which was put in place on
April 2, immediately took the share price to well under the 60 cent revised bid. It closed at 54 cents
representing a 26% fall from before it went into the trading halt and a discount of 10% to the latest offer
price.
Broker trading data for April 10, 2013 was as follows.
LEADING BROKERS April 10, 2013 LEADING BROKERS BY NET BUYING & NET SELLING
UBS 2,827,871 4,695,246 1,867,375 20.1% DMG 354,576 2,291,255 1,936,679 30.4%
COMM 3,251,875 2,888,685 -363,190 16.4% UBS 2,827,871 4,695,246 1,867,375 29.3%
CITI 1,725,637 1,093,454 -632,183 7.5% TIMR 38,890 1,532,382 1,493,492 23.5%
DMG 354,576 2,291,255 1,936,679 7.1% NATO 166,961 425,339 258,378 4.1%
GS 2,049,425 28,699 -2,020,726 5.6% AIEX 138,439 343,668 205,229 3.2%
MSDW 1,669,269 224,858 -1,444,411 5.1% ORDS 260,028 455,885 195,857 3.1%
SUSQ 797,860 827,366 29,506 4.3% SOSL 248,994 383,839 134,845 2.1%
TIMR 38,890 1,532,382 1,493,492 4.2% BRID 73,500 124,755 51,255 0.8%
MACQ 812,753 635,319 -177,434 3.8% CSUI 516,323 567,451 51,128 0.8%
ETRD 736,041 595,522 -140,519 3.5% Other 914,388 1,085,788 171,400 2.7%
BBY 566,000 565,000 -1,000 3.0%

Total 6,365,638

CSUI 516,323 567,451 51,128 3.0%

Net Selling
MACP 638,445 265,500 -372,945 2.4% BROKER SELLS BUYS NET SELLS NET %
ORDS 260,028 455,885 195,857 1.9% GS 2,049,425 28,699 -2,020,726 31.7%
SOSL 248,994 383,839 134,845 1.7% MSDW 1,669,269 224,858 -1,444,411 22.7%
NATO 166,961 425,339 258,378 1.6% CITI 1,725,637 1,093,454 -632,183 9.9%
AIEX 138,439 343,668 205,229 1.3% MACP 638,445 265,500 -372,945 5.9%
MERL 376,720 20,119 -356,601 1.1% COMM 3,251,875 2,888,685 -363,190 5.7%
CMCS 204,021 181,500 -22,521 1.0% MERL 376,720 20,119 -356,601 5.6%
SBAR 351,983 8,166 -343,817 1.0% SBAR 351,983 8,166 -343,817 5.4%
D2MX 150,000 150,000 0 0.8% RBSA 215,000 0 -215,000 3.4%
RBSA 215,000 0 -215,000 0.6% MACQ 812,753 635,319 -177,434 2.8%
BRID 73,500 124,755 51,255 0.5% HART 150,000 0 -150,000 2.4%
Other 547,587 414,190 -133,397 0.0% Other 1,937,121 1,647,790 -289,331 4.5%
Totals 18,718,198 18,718,198 0 100%

Total -6,365,638

The leading broker by market share on the resumption of trading was UBS with a market share of 20.1%. They
were also a leading net accumulator of shares along with Deutsche Bank with Timber Hill Australia, a relative
unknown helping out with very specific accumulation. Who they actually represented would be of great
interest in assessing whether trading was fair and reasonable.
58

Not unexpectedly, Goldman was prominent as a net seller along with Morgan Stanley and Citigroup as those
brokers have consistently been prominent in all trading, but again the relevant question is For whom?
The buying by UBS coincides with their upgrading Billabong from a sell to neutral on March 26 as reported on
the DJ News Wire/Market Talk service although the recommendation was reversed on April 10 with a
downgrading from neutral to a sell.
Trading following the announcement and leading up to a subsequent trading halt on May 7 is summarized in
the following chart.

UBS acted on their own advice by being a major net seller over the period April 11 through to May 6, 2013
with a market share of 30.1%. During that time they were also a major net seller of shares with 9.788 million
of net sales while Credit Suisse were the major net buyer of shares with 13.21 million net purchases.
The net trading of such large volumes between just two brokers (even if algorithms were to wash large
volumes of shares net sold by UBS through other brokers on their way to Credit Suisse) looks somewhat
suspicious. It also makes little sense for the following reasons.
Large volumes of broker crossings have been a feature of Billabong trading, so why didnt the two
brokers simply deal directly and cross the shares off-market or through special crossings?
Both brokers have been closely following the company and have issued negative recommendations so
in a sense it doesnt make logical sense that one would be a large seller and the other a large buyer
while in possession of similar negative views.
As such the trading appears to have been motivated by agendas to control and condition the market while the
bid process was drawing to a conclusion; a view that would perhaps be validated if audits showed that trading
didnt show any significant changes to beneficial ownership.
Unfortunately, the trading conducted by sophisticated investors is accompanied by opaque trading and
settlement dealings which means that the situation can only be clarified from an investigation of the accounts
of brokers and their clients. However the auditing of accounts doesnt seem to form part of the regulatory
response to what on face value present as dubious market events.
0.45
0.5
0.55
0.6
0.65
0.7
0.75
Apr
9
Apr
10
Apr
11
Apr
12
Apr
15
Apr
16
Apr
17
Apr
18
Apr
19
Apr
22
Apr
23
Apr
24
Apr
25
Apr
26
Apr
29
Apr
30
May
1
May
2
May
3
May
6
The price slump on the
resumption of trading
The price immediately before the trading halt
A share price slide as talks continue
BBG Share Price trend from April 9 to May 6, 2012
59

The trading data for the leading brokers during the period April 11 to May 6, 2013 was as follows.
LEADING BROKERS April 11, May 6, 2013 LEADING BROKERS BY NET BUYING & NET SELLING
UBS 23,379,396 13,591,404 -9,787,992 30.1% CSUI 908,008 14,115,495 13,207,487 64.5%
CSUI 908,008 14,115,495 13,207,487 12.1% COMM 3,962,688 5,754,941 1,792,253 8.7%
DMG 6,234,291 8,020,502 1,786,211 11.2% DMG 6,234,291 8,020,502 1,786,211 8.7%
COMM 3,962,688 5,754,941 1,792,253 7.9% TIMR 840,512 2,242,829 1,402,317 6.8%
CITI 3,977,846 2,894,585 -1,083,261 5.6% NATO 797,781 1,617,284 819,503 4.0%
GS 3,363,826 838,039 -2,525,787 3.4% SOSL 568,890 1,127,674 558,784 2.7%
MSDW 2,343,181 1,369,243 -973,938 3.0% CMCS 197,302 589,500 392,198 1.9%
MACQ 1,757,061 1,735,853 -21,208 2.8% AIEX 856,281 1,112,688 256,407 1.3%
ETRD 1,555,909 1,656,179 100,270 2.6% ETRD 1,555,909 1,656,179 100,270 0.5%
VIRT 2,227,797 1,037,132 -1,190,665 2.5% Other 34,323 203,148 168,825 0.8%
TIMR 840,512 2,242,829 1,402,317 2.5%

Total 20,484,255

SUSQ 1,552,047 1,442,958 -109,089 2.4%

Net Selling
NATO 797,781 1,617,284 819,503 1.9% BROKER SELLS BUYS NET SELLS NET %
INST 2,223,788 7,936 -2,215,852 1.7% UBS 23,379,396 13,591,404 -9,787,992 47.8%
AIEX 856,281 1,112,688 256,407 1.6% GS 3,363,826 838,039 -2,525,787 12.3%
JPM 952,031 716,247 -235,784 1.4% INST 2,223,788 7,936 -2,215,852 10.8%
MACP 1,037,053 605,600 -431,453 1.3% VIRT 2,227,797 1,037,132 -1,190,665 5.8%
SOSL 568,890 1,127,674 558,784 1.3% CITI 3,977,846 2,894,585 -1,083,261 5.3%
BBY 693,565 668,565 -25,000 1.1% MSDW 2,343,181 1,369,243 -973,938 4.8%
CMCS 197,302 589,500 392,198 0.7% MACP 1,037,053 605,600 -431,453 2.1%
ITG 371,681 27,794 -343,887 0.3% ITG 371,681 27,794 -343,887 1.7%
ORDS 256,400 135,312 -121,088 0.3% JPM 952,031 716,247 -235,784 1.2%
MERL 210,502 175,778 -34,724 0.3% BELL 240,529 16,500 -224,029 1.1%
Other 1,776,799 561,097 -1,215,702 0.0% Other 5,971,522 4,499,915 -1,471,607 7.2%
Totals 62,044,635 62,044,635 0 100%

Total -20,484,255

On April 24, 2013 the company granted a further extension of 10 days to the Sycamore consortium to enable
them to finalize arrangements with their offer. The additional extension also lapsed without resolution with a
trading halt called on May 7 followed by a suspension of trading on May 9 to allow discussions to be finalized
with all interested parties. There has been no trading since the close of trade on May 6.
Accompanying the suspension has been further speculation in the media that the current offer of 60 cents
would be reduced to 45 cents with the second consortium taking over the running from the Paul Naude
Group.
7.3.1.7.22 MEDIA COMMENTARY: MAY 10
The following media extract may further demonstrate the leaking of confidential information by informed
insiders in a strategic move to condition stakeholders for even lower offer prices. No information has been
forthcoming from the company in response to the article as the company has been in voluntary suspension
since May 10.
Billabong bid dropped to 45 cents? <LINK>
May 10, 2013
Media reports have suggested Sycamore Partners have reduced their bid for Billabong International (ASX:
BBG) from 60 cents to 45 cents.
The Australian is reporting that Billabong and its advisers have invited a previous suitor, Altamont Capital
Partners and VF Corporation into discussions, after the period of exclusive talks with Sycamore ended, without
procuring a bid the board was prepared to endorse.
60

Meanwhile shop-eat-surf.com, a website focused on actions sports industry news is reporting that sources
close to the Billabong negotiations have confirmed that VF Corp is no longer involved, but Altamont is still
interest in buying pieces of the company. However, the website suggests that that approach would not be in
the best interest of shareholders, and also confirmed that Sycamore had dropped its bid.
That may be why Billabongs shares last traded at 45.5 cents. Billabongs shares have been suspended since
Tuesday, while it continues discussions, and are unlikely to be un-suspended until Billabong makes an
announcement about a possible transaction.
The Australian Financial Review is reporting that Sycamore Partners has abandoned a full takeover offer, and
is instead looking at a recapitalisation deal. That could see Sycamore take up options, preferred shares or debt
in Billabong. According to the companys latest financial statements, Billabong has total borrowings of $286
million, but with falling earnings, share price or both, may have triggered a breach of its debt covenants.
Long suffering shareholders will likely be hoping for a resolution soon. Several institutional investors have
already given up, with Franklin Resources selling down its stake to 6.6%, and US-based TIAA-CREF revealing
that it was no longer a major shareholder, offloading more than 10 million shares.
Its almost hard to believe that Billabong shares once traded over $17 (in 2007), but have declined 97% since
then. Over the same period, the S&P / ASX 200 Index (Index: ^AXJO) (ASX: XJO) has lost 11%.
While the situation is still unclear, it may be some time before we know exactly how this is going to play out,
and Billabong shareholders will just have to wait it out

7.3.1.7.23 WHEN A BID ISNT REALLY A BID

The entire Billabong saga with one bid after another and with bids constantly changing in price and
structure highlight a tactic that has become common place with takeover bids in recent times. And that is to
lodge a bid that is non-binding and highly conditional in order to create certain expectations within the
shareholder group, and then to procrastinate, withdraw, change the price, or change the structure of the
bid all while investors, and indeed the Board of the company targeted, are locked into the process and face
increasing frustration that a bid doesnt turn out to be a bid at all. The situation is made even worse through
strategic leaks of confidential information that is accompanied by orchestrated share price take downs in an
attempt to substantially change what has been offered and to have the reduced offer somehow acceptable
because of deteriorating market conditions.
The situation can place companies and their shareholders in an intolerable situation and can represent a
form of not so subtle but legalized form of share price manipulation. While the arrangement may be
tolerated by regulators, what shouldnt be tolerated are the manipulative trading behaviours in the market
that accompany such takeover strategies and result in wide scale data anomalies. Such behaviours of course
can only be fully revealed by the auditing of accounts yet authorities seem very reluctant to do so. It poses
the question, Are they wary of what they might discover and what the implications for the entire market
might be?
Minter Ellison has identified the strategy and referred to it as a Bear Hug or Virtual Bid where an offer is
put forward on an indicative, non-binding and highly conditional basis as per the following <LINK>. They
make the point that if regulators wont act then it is a case for proactive legislation to be implemented to
stop the practice. The prevalence of Bear Hug strategies can readily be confirmed by an internet google
search and the research conducted regarding Billabong appears to suggest that it too is about to be added
to the list of companies unfairly targeted in this way.

61

Section 7.3.2
SHORT SELLING TRENDS REVISITED

62

7.3.2.1 OPEN SHORT POSITIONS 2013
The extensive leaking of confidential information to the media throughout price declines during 2012 and
2013 almost certainly means that insider trading is also reflected in fluctuations in open short positions and
short selling activity.
The chart summarizes key features of changes to open short positions throughout 2013 and aligns them
against corresponding share price trends.

0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
22/01/2013
29/01/2013
14/03/2013
15/03/2013
22/03/2013
10/04/2013
11/04/2013
24/04/2013
Jan 2013 May 2013
Open Short Volumes

$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20

Share Price
Period 1 P2 Period 3 P4 Period 5 P6
Open Short Positions versus Share Price Trends 2013
Jan 2013 May 2013
Apart from pinpointing likely periods of strong insider activity (i.e.; the building and rapid unwinding of open
short positions during a crucial period coinciding with the leaking of sensitive information) the charts also
demonstrate contradictory share price responses to shorting activity and the covering of positions.
In particular prices increased as open positions increased during Period 1, and retreated as covers were made
during Period 2. The opposite would be expected from genuine buying and selling. Period 3 displays the sort
of price action expected from short selling where price falls are usually accompanied by an increase in open
short positions .
The negative media reporting looks to have facilitated the covering of positions during Period 4 and the build
in positions during the trading halt of Period 5 is extremely curious; positions that were easily covered during
the price retreat that accompanied yet another reduced bid.

Period subject to insider
leaks to the media
63

7.3.2.2 FURTHER ANOMALOUS OPEN SHORT ACTIVITY: period April 16 to Sept 26, 2012.
April 26, 2012 marked the beginning of the extended share price decline before the capital raising was
announced on June 21, 2012. (Refer Section 7.3.1.7.5) The charts below show that open short positions
remained fairly static as the share price was sold down from Apr 26, suggesting that selling was from existing
holdings rather than short sales. Any selling by insiders at prices between $2.80 and $1.80 knowing that
replacement shares would be available at $1.02 would have been a lucrative trading strategy. The likelihood of
insider selling must be rated strongly given that information leaks accompanying major share price moves has
already been documented and it looks to be continuing as per the May 10, 2013 media article.

$0.80
$1.30
$1.80
$2.30
$2.80
$3.30

0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
40,000,000
45,000,000
50,000,000
The charts draw attention to two puzzling anomalies that question what has actually taken place with short
selling and securities lending. The anomalies include:
The 20 million increase in open short positions from Jun 21 to Jul 19 following the capital raising where
the share price had already been substantially reduced through the heavily discounted entitlement offer.
The large increase occurred without any significant impact to the share price and suggests that the rise
might relate to positions not properly declared as the share price was sold down prior to Jun 21.
The large 40 million reductions in open short positions from Jul 19 to Sept 26, again without share price
impact. Genuine buying pressure ought to impact price discovery even if it is undertaken off-market
where sellers would be expected to hold out for premiums rather than capitulate in favour of those who
needed to cover exposed positions. Perhaps newly issued shares were used to cover the positions?
Both situations allude to insider dealings in selling down the share price knowing that a large capital raising was
in the offing. The situation suggests high levels of cooperation between entities who perhaps shared similar
corporate agendas but at the same time, it casts further doubts about the genuineness of trading and the
fairness of the market.
April 16
SHARE PRICE
OPEN SHORTS
Jun 21
Sept 26
Jul 19
An approximate
20 million increase
in open shorts

Share Price and Open Short Position Comparison - Apr 16 to Sept 26, 2012
An approximate 40
million decrease in
open shorts
A share price sell down
prior to the capital raising
announced on Jun 21
Open short positions
remained fairly static as the
share price was sold down.
Open short position
increased after the
capital raising news
64

Section 7.3.3
BROKER DATA ACCOMPANYING SUBSTANTIAL SHAREHOLDER
NOTICES

65

7.3.3.1 JP MORGAN SUBSTANTIAL NOTICE MAY 2013
JP Morgans initial holding of 31,344,049 shares which represented rights over 6.4% of the register was
announced to the market in early May 2013. The disclosures in the announcement represented share
movements associated with securities lending and share movements associated with buying and selling over
the 4 month period Dec 31 12 to Apr 30 13. The following summary tracks the movements of shares
resulting from all activities.
ASX Activity Borrowing Lending
Sells (Off) Buys (ON) Return (Off) Borrow (On) Loan (off) Loan Receive (On)
127,245 411,125 35,800 17,690,200 6,561 6,561

The net share flows ON and OFF the register in relation to the JP Morgan substantial holding are therefore:
OFF ON NET
169,606 18,107,886 17,938,280

The dominance by securities lending shareflows over the buying and selling activity disclosed in the
substantial shareholder notice is highlighted in the chart which compares total ON/OFF volumes associated
with securities lending to Buy/Sell volumes associated with ASX trading.

Broker trading by JPM Morgan over the same period covered by the substantial notice compared to the
buying and selling by affiliates was as follows.
Dec 31 12 to Apr 30 13 Sells Buys Net
JPM Affiliate Activity 127,245 411,125 283,880
JPM Broker Activity 1,819,056 2,174,685 355,629

Securities Lending share flows versus Buying and
Selling Activity

Securities Lending Volumes
ASX Buying & Selling Volumes
The fact that substantial shareholder notices often
reflect inceases in voting rights primarily through
borrowed shares is of immense concern. Especially
given that they are usually acquired in order to profit
from the share price falls resulting from short selling.

When associated with collusive practices by other
entities in support of lower prices and when open
short exposures are managed via cooperative off-
market dealings, severe doubts arise about the ability
of technology driven markets to engage all investors
and to perform the roles expected of them.
KEY
JPM are seen to be either actively churning stock for other clients, or if the trading has been for affiliates then
only the net daily positions appear to have been recorded in the substantial shareholder notice - or perhaps
trading reflects both scenarios. In any case what the disclosure does convey is that a large amount of shares
have been acquired with the likely purpose to profit from the share price declines that usually accompany short
selling.
Of note is the fact that the 14.3 million shares were borrowed from April 14 with little trading taking place after
that date because the company entered voluntary suspension on May 6. The borrowings may be signalling
what can be expected after re-listing and trading resumes.

JP MORGAN AFFILIATES
Securities Lending
Volumes
66

7.3.3.2 NAB AFFILIATES REVISITED
A detailed review of trading by NAB Affiliates as a substantial shareholder group over the 3 year period 2010,
2011 and 2012 was provided in Research Paper 7.1 Section 7.1.3.8.1.5.3.
The summary table is repeated below with a chart that highlights the extent of securities lending share flows
compared to the amount of buying and selling that has taken place.
It is unclear whether the buying and selling represents all buying and selling by affiliates or whether it is
merely the net buying and selling recorded each day. If the latter then there is no way of knowing how much
churning of holdings has also taken place. i.e.; churning of holdings which might be classifed as manipulative if
any additional buying and selling was intended to control or manage pricing outcomes.
There is also no way of knowing which broker has been responsible for buying and selling on behalf of NAB
affiliates or whether a network of brokers has been engaged.
The National Australia Bank Ltd account shown shaded in the table reflects share flows from securities lending
while the remaining entities have engaged in buying and selling.
NAB GROUP ENTITIES
(2010, 2011 & 2012 Data as
per Substantial Notices)
Total OFF Total ON
Antares Managed Investments 0 5,000
Aviva Australia 887,325 946,184
MLC Investments Limited 12,129,455 11,969,175
MLC Limited 390,046 1,046,905
MLC Wealth 718,057 609,958
NAB Invest Managed 36,450 391,158
Nab Invest Holdings Limited 44,919 82,492
National Australia Bank 1,532,017 2,678,914
National Australia Bank Ltd 197,872,630 198,774,745

Total Movements 213,610,899 216,504,531
Securities Lending 92.6% 91.8%

The chart compares totals for ON and OFF share movements due to securities lending to the total movements
ON & OFF the register associated with buying and selling. The share flows over 3 years associated with the
dealings of UBS Affiliate are clearly dominated by securities lending with a paucity of buying and selling. The
situation is similar to that of JP Morgans dealings as a substantial holder and provides an interesting
perspective on how convoluted, irrational and difficult to comprehend trading in modern markets has
become. Not only is it difficult to comprehend but it is also extremely difficult to reconcile which makes
market regulation nigh on impossible under current arrangements.

Share flows from Buying & Selling
The imbalance between the volumes of share flows
associated with securities lending compared to buying &
selling raises concerns for the impact that securities lending
and off-market adjustments to short positions have on both
market liquidity and price discovery.
Share flows from Securities Lending
KEY
Securities Lending share flows versus Buying and
Selling Activity

NAB AFFILIATES
Securities Lending
Volumes
67

7.3.3.3 UBS SUBSTANTIAL SHAREHOLDER DISCLOSURES REVISITED
The trading by UBS Affiliates as revealed by substantial shareholder notices was also addressed in Research
Paper 7.1 Section 7.1.3.10.1. It is again brought to attention with corresponding broker data and a chart to
put the level of securities lending activity into context with the amount of buying and selling by affiliates.
The trading covered by the Dec 8 substantial shareholder notice is from Aug 8, 2011 through to Dec 5, 2011.

Dec 8, 2011 Substantial Shareholder Notice
Borrowed Shares Collateral Shares Market Transactions
Returned Received Returned Received Sells Buys
OFF ON OFF ON OFF ON
29,180,434 30,038,528 1,225,225 2,334,592 1,101,069 357,831

The trading by UBS Affiliates compared to broker trading over the same period is summarized in the table.

Period Aug 8 to Dec 5, 2011 Sells Buys
Affiliate ASX Trading
1,101,069 357,831
UBS Broker Trading 23,505,701 17,603,002

A comparison of UBS trading against all other brokers over 3 years of trading (2010 to the end of 2012) is also
summarized below. The impact on the register of UBS trading is likely to be considerable but unfortunately it
is also virtually untraceable under current regulatory arrangements. In any case it is seen to be mostly churn
LEADING BROKERS Jan 1 2010 to Dec 31, 2013 LEADING BROKERS BY NET BUYING & NET SELLING
CITI 227,104,283 227,241,671 137,388 13.8% COMM 123,204,059 149,412,938 26,208,879 30.4%
GS 210,836,446 197,618,555 -13,217,891 11.6% MACQ 135,420,365 147,337,300 11,916,935 13.8%
UBS 217,120,649 214,899,183 -2,221,466 11.5% ORDS 8,418,202 19,813,912 11,395,710 13.2%
DMG 153,342,899 151,932,684 -1,410,215 9.5% ETRD 36,271,319 45,113,075 8,841,756 10.3%
MACQ 135,420,365 147,337,300 11,916,935 8.9% AIEX 23,844,781 31,209,688 7,364,907 8.6%
CSUI 121,045,048 104,794,088 -16,250,960 6.6% PETRA 1,063,733 5,026,062 3,962,329 4.6%
MSDW 122,067,892 105,500,033 -16,567,859 5.8% BELL 10,352,391 13,801,453 3,449,062 4.0%
CIMB 55,651,217 48,068,351 -7,582,866 4.3% NET SELLS
JPM 84,187,051 79,794,249 -4,392,802 4.2% MSDW 122,067,892 105,500,033 -16,567,859 19.2%
COMM 123,204,059 149,412,938 26,208,879 4.0% CSUI 121,045,048 104,794,088 -16,250,960 18.9%
MERL 54,691,877 50,309,500 -4,382,377 2.7% GS 210,836,446 197,618,555 -13,217,891 15.3%
SUSQ 32,697,894 32,644,569 -53,325 2.0% CIMB 55,651,217 48,068,351 -7,582,866 8.8%
NAL 29,246,309 29,184,059 -62,250 1.9% JPM 84,187,051 79,794,249 -4,392,802 5.1%
INST 23,117,994 23,258,504 140,510 1.5% MERL 54,691,877 50,309,500 -4,382,377 5.1%
ETRD 36,271,319 45,113,075 8,841,756 1.2% EVAN 7,072,918 3,331,039 -3,741,879 4.3%
BBY 32,710,537 31,027,792 -1,682,745 1.1% JPM 952,031 716,247 -235,784 1.2%
OVERALL SHARE MOVEMENTS

OFF ON NET
31,506,728 32,730,951 1,224,223

Securities Lending activity versus
ASX Buying & Selling

UBS AFFILIATES
UBS disclosures have been a rarity in BBG trading with
holdings generally maintained under 5%. However the
initial disclosure announced on Dec 8, 2011 shows
extraordinary levels of share flows associated with
securities lending compared to the buying and selling by
its affiliates. The details from the Dec 8 notice raise
questions about what the rest of UBS trading might
reveal given that over 3 years of trading they are the
equal 2nd ranked broker in terms of market share.
KEY
Securities Lending
Volumes
68

7.3.3.4 MACQUARIE GROUP SUBSTANTIAL SHAREHOLDER DISCLOSURES
The trading by Macquarie Affiliates as revealed by substantial shareholder notices was addressed in Research
Paper 7.1 Section 7.1.3.12.1. It is again brought to attention with corresponding broker data and a chart to
put the level of securities lending activity into context with the amount of buying and selling by affiliates.
The data covers disclosures announced on July 5, 2012 (Initial Notice) through to August 7, 2012 (Ceasing
Notice) which involve broker trading from March 1, 2012 through to August 2, 2012. The tables do not include
37.91 million purchases resulting from the entitlement offer announced in Jun 2012.
ASX Activity Securities Lending Off Market
Sells Buys Returns Borrows Crossings
OFF PN OFF ON OFF ON
19,501,862 18252768 8,864,347 6,715,905 2,374,616 2,374,616

Broker activity by Macquaries institutional broker (MACQ) is approximately double the buying and selling
undertaken by affiliates although again it is not known whether Macquarie substantial shareholder
disclosures represent all trades undertaken or just the net trades conducted each day. If the latter then their
trading may require a full assessment to ensure that wash trades havent been a part of any trading
strategies.
Failing that it has to be assumed that surplus buying and selling was done on behalf of other undisclosed
clients with no guarantees that other entities werent using Macquarie for wash trades or trading activities
that resulted in an unfair market.

Sells Buys Net
Macquarie Affiliate Activity 19,501,862 18,252,768 -1,249,094
MACQ Broker Activity 35,358,613 37,933,837 2,575,224

The same of course is true for the majority of trading that takes place on the ASX, not just Macquaries or any
other brokers trading in Billabong.

Securities Lending activity versus
ASX Buying & Selling

KEY

The balance between securities lending and
ASX buying & selling activity by Macquarie
Affiliates is much more in keeping with what
might be logically expected from borrowings
to support short selling. It makes trends
associated with UBS, NAB all the more
bewildering if not suspicious.

MACQUARIE GROUP
Buying & Selling Activity
Rather than rely on participants doing the right thing regulation ought to be able to determine exactly
what has taken place at any point in time with procedures in place to make brokers and clients fully
accountable for their actions. Regulation without an inclination to establish an accurate audit trail to
monitor what has taken place in the market, and to make entities fully accountable for their actions, must
surely amount to non-regulation. And of course without effective regulation of the market any references
to market integrity while ignoring wide scale data anomalies become somewhat nonsensical and can only
be regarded with suspicion or in some particularly obvious cases, scepticism and derision. The end result is
a massive loss of confidence in the market system itself which is exactly what has occurred in recent years.
69

APPENDIX

ISSUES CONCERNING TRADING IN BILLABONG:

Buying and selling is a straight forward process yet the trading and settlement system has evolved in such
a way that it is extremely difficult to reconcile the trading activity of sophisticated investors with
ownership changes on the register. The key to obfuscation is the trading and settlement system itself
where broker identities in relation to sophisticated entities are usually not revealed as the settlement of
their trades are attended to by specialist settlement agents not the brokers themselves. A situation where
entities are not able to be made accountable for their trading activities, and where their trading
represents the majority of buying and selling put through the market, essentially portrays an unregulated
market that is severely lacking in integrity.
In response to operational difficulties faced by the company, 2.154 billion shares have traded back and
forth over a period of 3.25 years resulting in a share price that has given up 96% of its value. Yet the year
by year ownership by institutions, which have been responsible for the bulk of the trading, has averaged
around 63% of the register. An apparent lack of genuine ownership changes appears to be the result of
high levels of collusion between brokers, fund managers and sophisticated investors, where the
devaluation of their holdings has been compensated for by trading that has stripped large profits from the
market while helping to engineer share price declines. Profits have come at the expense of retail investors
and at the expense of millions of small investors with funds under management whose holdings have been
loaned out to facilitate short selling. And unfortunately, the activity isnt restricted to trading in Billabong
Corporation. A system that can allow high levels of collusive and destructive trading behaviours by
sophisticated investors at the expense of vulnerable smaller participants, mainly represented by the joint
holdings of super funds and mutual funds, is clearly in need of wide ranging reform.
Trading in Billabong looks to have been unfairly compromised by interests preparing the market for
takeover activity, as suggested by severe undervaluations prior to the arrival of offers for control of the
companys assets. The targeting of the company has resulted in a procession of indicative, non-binding
and highly conditional offers (or as described by Minter Ellison, Bear Hug or Virtual offers) which have
all been accompanied by dubious trading and corporate activities such as:
o The leaking of confidential information to the media;
o Dubious trading that has resulted in sharp falls in the share price at critical times;
o The withdrawal of bids only to result in alternative offers at reduced prices.
While the company has been held hostage to Virtual Offers and with management distracted from
company business while negotiations have taken place, the share price has retreated from $3 to $0.45.
The damage done to the Billabong trading band is one of the collateral casualties in the entire saga.
The alliance of TPG with Colonial First State and Perennial Value Management also suggest long term
planning and possible market involvement prior to take over offers, particularly as TPG has a track history
of collusion and unacceptable dealings when bidding for companies. (Refer Paper 7.1 Section 3.8.11 to
3.9.4 and Section 3.15.1)
Regular large crossings have been a feature of trading through critical trading periods while at other times
large volumes of selling have not been expeditiously dealt with by crossings but put through the market
even when there have been brokers standing in the market as dedicated buyers yet at such times
trading has often resulted in minimal changes to beneficial ownership despite large volume transactions
occurring.
70

The patterns suggest breaches of trading protocols as per the Paul Constable Paper <LINK> so therefore
appear to be highly questionable
Quote: A person is taken to have created a false or misleading appearance of active trading in particular
financial products on a financial market if they enter into, or carry out (either directly or indirectly) any transaction
involving the acquisition or disposal of any of those financial products that does not involve any change in the beneficial
ownership of the products, transactions known as wash trades

A number of trading strategies appear to have been used by sophisticated investors in controlling the
Billabong share price through critical trading periods. They include:
o The use of retail brokers to camouflage large volumes of institutional buying and selling amongst
retail investors;
o The use of multiple brokers to churn large volumes of buying and selling but where only marginal
changes to beneficial ownership result from the activity;
o The use of specific brokers as dedicated net sellers and others as dedicated net buyers but where
no significant changes to beneficial ownership occurs suggesting that buying and selling brokers
are again acting for much the same interests;
o The use of brokers who normally have only a minor influence over trading as key net buyers or key
net sellers of stock at critical times, presumably to confuse what is taking place.
The patterns of trading again suggest collusion, or as a minimum, the unfair use of multiple brokers to
implement trading agendas. The patterns are identifiable throughout all periods referred to in the timeline
of Section 7.3.1.4 and are likely to have compromised the market and distorted price discovery outcomes.

If the majority of trading by institutional investors was to be put through the market between just two
brokers and if ownership changes turned out to be minimal while the share price lost 96% of its value,
then the trading would no doubt be flagged as manipulative and unfair by all market participants including
regulators. The situation is simplistic in the extreme but it does help to convey some important issues.
By distributing the buying and selling amongst multiple brokers and changing the mix so that no single
broker adopts too large a profile over any period of time, the same trading results can be achieved and
essentially the same methods can be used but on a smaller scale because of the use of multiple brokers.
The net result is the same outcome as the two broker case, but with trading given an air of acceptability.
The situation is precisely where algorithms come into play with trading agendas skilfully and automatically
managed so as to keep under the radar of ASC surveillance while essentially delivering the same outcomes
as the simplistic case outlined above.
Far too much attention has been focussed on the use of algorithms for front running orders, the flooding
and withdrawing of orders from the system, the out of control buying or selling loops that rogue
algorithms can fall into, the dubious single share trades and the like, and all the while their function in
achieving the large scale trading agendas of sophisticated investors, such as has been the case with
Billabong, have completely escaped attention. The reality concerning algorithms is that they are
advantaging sophisticated investors over small investors in day to day trading but they are also delivering
strategic advantage in the targeting of companies. Algorithmic trading provides a powerful tool for the
control over prices that leads to company assets being seized through takeover, and to large placements
being secured from desperate companies, all at grossly under-valued pricing levels.
71

There appears to be a serious conflict of interest associated with fund managers lending their clients
shares to be short sold into the market thereby resulting in the severe devaluation of holdings, while other
managers have made shares available for the covering of short positions without any impact on prices.
The behaviours question the legitimacy of short selling when the system can be conveniently used to
justify manipulative trading strategies and where the interests of small clients are sacrificed for the benefit
of sophisticated investors.
Insider activity appears to have been a regular theme with trading associated with Billabong since
November 2011 following the share price declines that occurred that werent able to be adequately
explained (Refer Section 7.3.1.7.1.1). Further examples that suggest insider activity include:
o The leading roles of two brokers in trading prior to the entitlement offer where price declines
occurred over several weeks, and where the brokers were also underwriters for the capital raising.
o The build-up in short positions leading up to July 23, 2012 and the sudden unwinding of 30 million
open shorts soon after without price impact
o The leaking of confidential information to the press on Oct 4,2012 and March 21, 2013 resulting in
sharp falls on both occasions and which set the framework for reduced bids to be submitted;
Given dubious events such as the above, there are also doubts as to whether the Bain Capital bid was a
genuine attempt to gain control of the company or a move designed to further destabilize the company.
The rationale that allows short selling has resulted in companies becoming major shareholders purely
through the borrowing of shares with the intention of profiting from the destruction of value through
short selling. It is an absurd development and strikes at the heart of the markets ability to perform the
roles intended of it - i.e.; to provide a medium for the fair exchange of goods and to assist with the raising
of capital at fair prices to facilitate productive enterprise. When trading activity results in 97% of share
flows of major shareholders being associated with securities lending, not buying and selling in the market,
it is signalling that markets have become completely misdirected.
Accompanying the concerns about the elevated role that securities lending has assumed in day to day
market operations is the inability, even by regulators, to be able to accurately track open short exposures.
Official data has been shown to be unreliable which is not surprising as disclaimers on the regulators
website also suggest that there can be no guarantees about the accuracy of official information.
Inconsistencies in data have been demonstrated by comparing short selling volumes to movements in
declared open short positions and to corresponding changes with securities lending and securities
borrowing data. Very little correlation exists suggesting that at critical times, positions arent being
reported accurately, or arent being reported at all.
Another issue that severely detracts from market integrity is the practice of short selling on-market and
the managing of exposed positions and the reduction of exposed positions in off-market dealings that is
facilitated by securities lending. The practice contradicts provisions that justify short selling that assume
efficient and fair markets and dont take into account the cooperation and collusion that occurs between
entities on both sides of short selling trades. There is no doubt that the system is still being abused by
major players, just as it was when naked short selling was accepted by regulatory authorities as a
legitimate trading activity.
The securities lending industry has become so large and unwieldy that a substantial amount of trading is
likely to be involved with ensuring that exposed positions are maintained at manageable levels a
dysfunctional situation where the tail is now likely to be wagging the dog, and equates to control over
share prices, or indeed, share price manipulation.

72

Exposures associated with securities lending are multifaceted. For example:
o A rise in the price of shares that have been sold short requires loan ratios to be maintained at
agreed levels and that might be achieved through reductions via forced short covering on market
(a rare event), through further borrowings from other entities, through the handing over of
additional securities as collateral or even the raising of cash through the selling of other securities.
o A fall in the price of shares sold short but not yet covered provides a degree of comfort as the
trade is headed in the right direction, however, a fall in the value of collateral held could put loan
ratios out of balance and require further collateral to be advanced, or covering on market to
reduce lending commitments, or further borrowings from other entities or the selling of other
securities to raise cash.
The complexities associated with securities lending relate back to a need to keep to loan ratios in balance.
The ratios compare the value of shares lent out to the value of the collateral provided to insure the loans.
Significant fluctuations in the share prices of shares loaned out for short selling purposes, or fluctuations
in the value of shares advanced as collateral, are therefore seen to have wide ranging ramifications.
The situation has perhaps resulted in wide scale cooperation and collusion between the major players
associated with securities lending as it is in their collective interests to manage exposures for the benefit
of all concerned. Forced covering potentially creates systemic pressures including the forced selling of
other shares to raise capital, which can cause instability to loan ratios across the board. Although
collusion possibly prevents systemic collapses during volatile periods, the situation is effectively one of
share price manipulation with sophisticated investors managing their affairs at the expense of vulnerable
smaller players whose shares represent lending stock with doubts as to whether they fully understand
what they have given permission to facilitate. The system has become to be associated with zero
credibility regarding market integrity and requires far reaching reforms.
Finally, a disturbing feature of research is that with a review of a relatively small number of substantial
shareholder notices relating to a small number of companies, serious anomalies with trading have been
identified. Yet the anomalies have implications for all trading taking place on the ASX and not only that,
but the majority of trading is invisible to the market as it falls under compulsory reporting thresholds. It
raises major concerns about what might be revealed if trading was truly transparent and if reporting for
instance was also based on the volumes of trades put through over a given period, irrespective of whether
the 5% threshold was triggered. Certainly a more informed market and an easier pathway for regulation to
take place would be a step in the right direction in restoring market integrity.

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