Sharetrading on TradeMe daft idea

Tuesday, January 31st 2006, 10:27PM

I'm not sure how many of you read the story the other day about Trade Me supposedly getting into the business of sharetrading/capital raising.

To recap: the story in NBR said Trade Me, New Zealand's largest website, was looking at setting up a platform to trade shares. The idea is that rules would be relaxed and sums of up to $20,000 could be spent with a buyer-beware clause, before stricter rules on capital raising applied. It went onto say that TradeMe was talking to the government, and that PM Clark and Finance Minister Cullen were reportedly "positive" on the idea.

Well from what I can see the story is an extrapolation of an idea expressed by two businessmen unrelated with Trade Me. This idea has been turned into a story far bigger than it really is - which is lucky as it should help kill the thought.

I wouldn't be surprised if Trade Me had looked at this area from time to time, but it seems their focus is in other markets such as property.

For the government to be keen is highly unlikely after it seriously considered closing down the unregulated trading platform Unlisted.

Just image the stink NZX would put up against Trade Me if its efforts with the much smaller Unlisted are anything to go by.

From an investors' point of view it is a daft idea. All it would do is make a big pool for sharks to feed in.

If you could raise capital as easily as putting an offer on TradeMe then you would undoubtedly see the gullible public being taken for a ride. People try to do it in the current environment which has tougher rules.

A classic case is one where a company tries to raise money from the public with an IPO over hyping the value of its assets, growth plans and earnings potential.

The offer fails - with a little help from the regulators. The business carries on for a year or so, and when things start going wrong the assets are sold to another company at prices lower than the values stated in the prospectus.

The original company collapses and creditors are lucky to get a little of what they are owed back as all the assets have gone. Normally IRD is one of the creditors. So in this case the public stands to lose either at the start with an IPO which if it got off the ground wouldn't deliver. And at the end the public loses out as IRD is a creditor.

There is only one winner and it's not the investing public.

« Ouch...that hurts

Maybe the answer is a capital gains tax? »

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