MARGIN LOANS held by directors and executives leave a company more exposed to short selling, according to a majority of governance professionals surveyed last month, but a large minority say there should be no requirement for them to disclose shares subject to margin loans.

As well, all respondents to the survey said their company had a share trading policy, but close to a fifth said there was no formal tracking of compliance with the rules.

Chartered Secretaries Australia (CSA) said 82 per cent of respondents to its survey supported tighter market regulation of short selling and stock lending, but 37 percent said directors and executives should not have to disclose their shares subject to margin calls.

“Recent market disquiet concerning the disclosure and non-disclosure of margin loans held by directors and senior executives indicates that the market wants greater clarity around when a director and or executive should disclose when they hold shares tied to a margin loan,” said CSA’s chief executive, Tim Sheehy.

“There needs to be a clear rule that is not open to interpretation. A number of respondents suggested disclosure should be mandatory if the holdings tied to the margin loan could make a material difference to the company’s share price.”

However, he said determining what should be considered ‘material’ would be difficult as there was as yet no clear, objective test in the listing rules.

Deciding on the best test for materiality itself would be no easy task either, although one possibility was that it could be defined according to a percentage of issued capital, Sheehy said.

“The issue of disclosure around margin loans needs to be addressed and the views of all stakeholders, including shareholders, should be canvassed as a matter of priority,” Sheehy said.