The Opes Prime which was established in 2003 has built its reputation as a “specialist securities lending and margin lending broker. ” Meanwhile, margin lending is a lending product by which a certain lending company lends money to a particular individual for the purpose of investing it in securities and other financial products. At the time of its operation, millions has already availed of their services. Many also trusted the system of the lending company and so some have invested their money and securities.
Primarily, Opes Prime generates income in two ways. One is the interest differential. Another is the income from lending to short sellers. The interest differential is the differences of the interest that the Opes Prime takes from the money lent to the client and that from the interest rate in borrowing money from ANZ. On the other hand, short sellers are those who short sell stocks with the hope that the price of the stock will fall. This system has been said unethical but Opes Prime adhered to it.
It can be observed that in the nature of business, Opes Prime serves as a middle man between the clients and the ANZ. Hence, it is also called a broker. The Opes Prime would lend money to clients to buy securities. Now, these securities in the hands of Opes Prime will be used by Prime to obtain loan from ANZ. The income would be generated through lower interest from ANZ loan and the interest it will obtain from the client. In the unusual collapsed of the reputable lending company, many were considered as reason.
The identity of the clients was not easy for the company because there were millions. Besides, stock lenders sometimes do not have chance of knowing the identity of borrowers. The speculation of manipulating accounts and the possibility of insider trading are also considered by the investigations. Furthermore, the Opes Prime may have committed mistake as to its system ion favoring its clients. Notably, the company has clients called most favored who are given higher loans and considerations.
More importantly, through the nature of business, the collapse of the Opes Prime is certain. It is noteworthy that the nature of business is dependent mainly on the interest it will gain from borrowers and from the ANZ. The collapse may be attributable much to the fact that the company has not noticed or monitored well the activity of the income it earns and the losses it suffers from the short sellers. In addition, the company may have not noticed the impact of its policies on its most-favored clients.
From the nature of the business, it is clear that stocks or securities that the borrower has invested ends up in the hands of the ANZ. The activity of the price in the stock market may have contributed to the collapsed through the selling of the stocks by the borrowers to others. It is noteworthy that the borrowers highly prioritize to earn from the securities they invest. Hence, they also adopt ways on how to make their investment double or earn an interest. Above all, the fear of landing margin may have been experienced in the process but not noticed earlier by Opes Prime.
It can be noted that this kind of business requires updated and regular payment of the loan so as not to suffer the consequences of default. It may be possible that many borrowers defaulted in their loan and the lender sold the securities of the borrowers in a lower rate that did not reciprocate the amount of the loan. Finally, it can also be possible that the collapse of the company have been through illegal activities it adopted while in active business. In response to the alarming problem, the government has started investigating OPes Prime and ANZ.
In addition, clients have also been advised to file suits of settlement because it is viewed that the acts of creditors, ANZ and Merill Lynch as illegal as they liquidated the assets of Opes Prime in payment for the latter’s debt to them. Bibliography Ferguson, Adele, Opes Prime founders in whirlpool, The Australian News, 2008, retrieved 28 March 2009, <http://www. theaustralian. news. com. au/story/0,25197,23456730-643,00. html> Frith, Bryan, Plan to Pay Opes Prime Creditors May Be Unlawful, The Australian Business, 2008, retrieved 28 March 2009, < http://www. theaustralian. news. com.
au/business/story/0,28124,25178675-16941,00. html> Margin Lending and Short Selling- The Fallout from Opes Prime, DLA Phillips Fox, 2008, retrieved 28 March 2009, <http://researchaustralia. org/content/documents/DLA%20Phillips%20Fox%20Article%20-%20Margin%20Lending%20and%20Short%20Selling. pdf> Melbourne Finance House Opes Prime Collapse, David Tan Tech. , 2008, retrieved 28 March 2009, <http://www. davidtan. org/melbourne-finance-house-opes-prime-collapse/> Naidu, Sandy, Reasons for Opes Prime Collapse, FutureNestEgg, 2008, retrieved 28 March 2009, <http://www. futurenestegg. com/reasons-opesprime-collapsed/>