CuDECO SHAREHOLDER RESEARCH

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

7.1 Research Findings in Relation to CuDeco Limited, Lynas
Corporation, Billabong Corporation and Echo Entertainment







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

3

INTRODUCTION

The current difficult trading environment for global markets is a legacy of the GFC brought about because
of profoundly dubious lending practices by the large investment banks.
The same firms are behind many of the innovations to stock market trading systems over the last few
decades which in the aftermath of the GFC are slowly being recognized as detrimental to the interests of
small retail investors and indeed the health and integrity of the market system itself. Australia is no
exception. In acknowledgment of an unfair system and the difficulty in being able to profit from their
investments, retail investors have responded by deserting the markets. It is a global trend as indicated by
media articles such as Retail investors' participation in equity falls to 7-year low and Australian Securities
Exchange struggles with 7yr-low.
The impact on shareholder wealth of dubious aspects of our current trading environment represents a
major issue for Australias financial markets. At the centre of a compromised trading environment are
severe problems associated with:
Securities lending and the short selling that it supports;
High frequency trading programs and the un-level playing field they represent;
Extensive dark pool trades and other dark off-market activity; and
Serious issues concerning market transparency, market integrity and market regulation.
All issues have immense implications for the integrity and health of not only the Australian financial markets,
but also for the national interest, the economy and the wellbeing of compulsory superannuation
contributions of Australian workers who are forced to be invested in a perilous environment whether they
want to or not.
The trading behaviours responsible for data anomalies in regard to CuDeco Limited (CDU) are highly likely
to have been duplicated across the ASX suggesting that CuDeco trading issues are also issues faced by
investors in many other ASX companies.
In recognition of the potentially far reaching implications resulting from dubious trading practices, Chapter
7 of the Research Blog looks at the trends across a number of ASX 200 companies, beginning with CuDeco
and including 3 additional case studies from entirely different sectors. The case studies include:
Lynas Corporation (LYC) Resources Sector;
Billabong Corporation (BBG) Retail Sector, and;
Echo Entertainment Group (EGP) Leisure & Entertainment Sector.
Extending the research to other companies will hopefully highlight the extent of problems faced by the
ASX, ASIC and indeed, Treasury, which is ultimately responsible for the health of our market system. It
should also help to demonstrate that CuDeco issues need to be taken seriously, as they are flagging
systemic problems that require immediate attention.

4

EXECUTIVE SUMMARY
Research Paper 7.1 looks at many of the data anomalies and trading issues that have been identified in
relation to CuDeco and compares them with data trends associated with other ASX 200 stocks.
Three stocks have been used as case studies and all aspects of trading as revealed by publicly available
information has been the focus of investigations. These companies used as case studies are the forerunners
of investigations that will encompass at least twenty ASX200 stocks and which should provide a basis for
accurately assessing how the trading issues identified are likely to extend right across the ASX.
Research into Lynas Corporation (LYC), Billabong Corporation (BBG) and Echo Entertainment Group (EGP)
has had particular emphasis placed on:
The role that short selling has had in hastening share price declines and leading to under valuations;
The contradiction between short selling forcing share prices lower but short covering having little or
no impact on share prices;
The extent of data anomalies associated with official daily data, substantial shareholder disclosures
and the wide variances in the quality 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;
A reporting system that enables sophisticated investors to conceal their activities with a 4 day delay
in the reporting of short positions, a 3 day delay in the reporting of securities lending arrangements
and broker trades, the reporting of short selling the following day but only after a delay that enables
exposures to be managed, but importantly no requirement for reporting short covering which
provides a large amount of flexibility to fudge exposed positions with off-market adjustments;
The involvement of pension fund holdings with stock lending and the contradiction represented by
fund managers securing relatively small income streams from stock lending for their clients while
ensuring substantial capital losses 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 that sit at the heart of spurious trading and make it possible;
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 catalysts behind major trading fluctuations and how news is used as both a trigger and a smoke
screen to implement aberrant trading behaviours that force irrational share price fluctuations;
Data-based insights into a fundamental contradiction with our investment markets where the system
is meant to provide a medium for the fair exchange of securities between genuine buyers and
genuine sellers and to provide companies with access to capital to grow their businesses and
(thereby generate wealth and employment that should strengthen the economy ), yet substantial
shareholder status can often come about through the borrowing of large tranches of shares by
5

entities focussed on destroying value in the companies they target through short selling. The
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 cheap prices but if entities are colluding
1
, or simply standing aside waiting their
turn, then companies become extremely vulnerable and the system itself is placed at extreme risk.
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 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, company achievements virtually become irrelevant
because of trading designed to quickly override any lift from good news.
The unanswered questions regarding stock lending and short selling despite assurances about their
role in financial markets by the ASX, by ASIC and by the establishment press are:
1. Who would knowingly 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 would
facilitate such dealings on behalf of their clients knowing that their client portfolios would be
substantially devalued?
3. Who would actively assist entities to cover large short exposures in such a way as to avoid any
impact on the share price of the company that has been targeted?
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? Such an approach would certainly help to
manage exposures and to minimize the need for supplying additional collateral in the event of price
increases. It would also help to explain observed market trends in a difficult business environment
that has perhaps been made all the more difficult because of vested interests, and finally;
5. 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?





1
Refer Section 7.1.3.15.1 REGARDING POSSIBLE COLLUSION BY FUND MANAGERS, BROKERS and their AFFILIATES
It is difficult to successfully answer questions such as the above without getting into issues of collusion,
collaboration and share price manipulation which are also addressed by research from the point of view of
historical precedent. 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.

6


CONTENTS



Section 1 ......Pg. 7
A SUMMARY OF CuDECO TRADING ANOMALIES (to date)

Section 2 ........... Pg. 16
CASE STUDY 1: LYNAS CORPORATION (LYC)

Section 3 . ...Pg. 27
CASE STUDY 2: BILLABONG CORPORATION (BBG)

Section 4 .............. Pg. 73
CASE STUDY 3: ECHO ENTERTAINMENT GROUP (EGP)


7


Section 7.1.1
A SUMMARY OF CuDECO TRADING ANOMALIES (to date)

8

Institutional dealings in relation to CuDeco have been characterized by high levels of trading churn with
shares being passed back and forth between each other often without significant changes to holdings given
the volumes traded. Data-based observations in relation to CuDeco trading, all backed by research data
over the period Jan 2010 to June 2012 (2.5 years) include:

7.1.1.1 Five institutional shareholders have accounted for 70% of all registry movements over the 2.5 years,
and 85% of all registry activity over the first 6 months of 2012, and;
2 institutional shareholders in their own right are responsible for 50% of all registry activity over 2.5 years
and 70% of all registry activity over the first 6 months of 2012.
Trading has the appearance of a cartel dominating proceedings and dictating terms to the rest of the
market.
7.1.1.2 Trading by the two leading institutions is remarkably symmetrical with exceedingly large volumes
put through the register compared to all other entities. The symmetry of the holdings suggests that the
fund managers have been strongly supporting each other with their trading. (Ref. Paper 6.5 Sect 6.5.5.8.1)
Institutional Entity OFF ON NET
Citicorp Nominees 124,057,631 123,164,692 -892,939
National Nominees 99,615,532 99,639,309 23,777

7.1.1.3 Sophisticated investors have had a major influence over trading throughout the 2.5 year period
reviewed. They are represented on the register through the custodial accounts held by the investment
banks, often referred to as institutions. Their trading activity is noted as follows:
They have increased their level of ownership of the Company from 6.4% in 2006 to 39.7% in 2012.
The increase has mostly occurred in the period covered by research where extensive price capping
through the churning of holdings and through stock lending and short selling has accompanied their
accumulation.
If the passive investment of corner stone investor New Apex Asia is also included, sophisticated
investors have increased their ownership of the Company to 52.4% .
Accumulation has been achieved at the expense of retail investors (20 M shares sold), corporate
investors (5 M shares sold) and through Company placements (63.2 M shares) Refer 6.5.5.6.2
The increase in institutional ownership by sophisticated investors led by one of the worlds leading
funds (i.e. Vanguard Group) is not reflected in the share price which remains capped and seemingly
unsupported. Nor is it in keeping with the widespread and ongoing negativity disseminated by
establishment brokers, the financial media and public forums which mainly impacts the investment
decisions of retail investors, not sophisticated investors who have done thorough Due Diligence.
The trading statistics of institutions from Jan 2010 to June 2012 are as follows


Registry Share Flows from Trading Only

Registry Share Flows from Trading plus Placements

OFF ON NET

OFF ON NET
Citicorp Nominees 124,057,631 123,164,692 -892,939

124,057,631 123,164,692 -892,939
National Nominees 99,615,532 99,639,309 23,777

99,615,532 99,639,309 23,777
HSBC Nominees 41,695,946 45,171,064 3,475,118

69,493,625 83,845,779 14,352,154
JP Morgan 20,745,604 35,226,508 14,480,904

20,745,604 63,498,741 42,753,137
ANZ Nominees 13,544,264 8,800,260 -4,744,004 13,544,264 8,800,260 -4,744,004
New Apex Asia - - - - 23,977,000 23,977,000

299,658,977 312,001,833 12,342,856

327,456,656 402,925,781 75,469,125

The trading activity within Citicorp and National Nominees is likely to have provided a blanket of control
over the market and needs to be viewed against the strong accumulation that has occurred in HSBC
Nominees and JP Morgan Nominees through company placements and on-market buying.
9

7.1.1.4 Trading records over a period of 30 months show highly anomalous variations between broker
buying and selling volumes and the settlement volumes that accompany their on-market dealings. The
table draws attention to some of the more obvious anomalies which raise suspicions about what is actually
playing out in the market. Of course in a truly transparent trading and settlement environment involving
genuine buying & selling, broker volumes ought to faithfully correspond with client registry movements.

Proportion of
ASX Trades
Transparent
Trades
Non-Transparent
Trades
Net
Buys/Sells
Visible
Clients
Proportion of
Settlements
UBS 5.4% 53% 47% -4,145,657 Brispot Nominees 26.9%
DMG 8.0% 14% 86% -2,750,680 Pan Australia Noms. 5.2%
COMM 18.5% 40% 60% -1,404,096 Various Retail 11.9%
CITI 7.2% 0% 100% 34,950 ? 2.4%
MSDW 3.6% 0% 100% 11,837,407 ? 0.0%
SBAR 3.0% 31% 69% -324,854 Various Retail 2.0%
CSUI 2.6% 0% 100% 561,304 ? 2.0%
ETRD 6.2% 53% 47% -2,784,749 Various Retail 5.9%
AIEX 5.7% 57% 43% -3,007,712 Various Retail 9.1%

The data demonstrates the extent of obfuscation associated with trading which in turn has serious
implications for market transparency and market integrity. The following examples highlight concerns:
UBS have been involved in a disproportionate number of settlements than trades it has put through
the market, suggesting a potential for collusion and possible insider trading, simply because UBS
would be privy to the dealings of those it has acted for.
All trades by brokers CITI, MSDW and CSUI are completely opaque to the market yet two of the
brokers are associated with entities who have had a major impact on the register. CITI through its
association with Citicorp Nominees, and MSDW in its role as buyer for the Vanguard Group.
60% of all trades put through by COMM, by far the most active broker, are also opaque to the
market. Their dealings involve very large volumes of transactions about which very little is known.
The anonymity of heavy net selling by both UBS and DMG (assumed however to be institutions),
whereas MSDWs buying has been revealed albeit indirectly through substantial shareholder
notices by Vanguard.
While the net selling of say ETRD and AIEX can be attributed to retail investors, not so obvious is the
net selling by UBS & DMG for sophisticated investors where there has been no corresponding
reduction in holdings. It perhaps serves to demonstrate that fund managers have been heavily
selling through some brokers such as UBS & DMG, while buying through others but which are
servicing the same accounts.
A reconciliation of broker trading and broker registry records has shown that around 72.4% of all
trading taking place over 2.5 years represents surplus trades of brokers. The surplus trades are
conducted on behalf of institutions and are settled by other agents not the brokers themselves. The
surplus trades are the only way of accounting for the massive volumes of institutional trades that
show up in accounts such as Citicorp Nominees, National Nominees & HSBC Nominees etc. The
settlement process in effect camouflages the surplus trades of brokers by not showing the
linkages between the active brokers in the market and the institutions they are servicing. (Refer
Paper 6.5 Sect 6.5.5.2.3). The influence of institutions is therefore seen to be spread across a
majority of brokers where price capping and/or a dysfunctional, compromised market would be
readily achievable if that happened to be a particular agenda of fund managers.

7.1.1.5 Trading has seen periods where large volumes of possibly illegal wash trades have dominated
proceedings and periods where large volumes of off-market activity may also have compromised the
market. The extent of such trading, all of which has been opaque to the market, has been estimated at:
Total Wash Trades: 87.1 mill sells, 89.1 million buys (Refer Paper 6.4
Total Dark Trades: 116.9 mill sells, 119.5 million buys Sections 6.4.2.8 & 2.10)
10

Furthermore:
Wash Trades or trades that have been netted out and so dont appear on the register
represent almost a quarter of all trading taking place.
The months where Dark Trades have figured prominently (including periods of suspension),
resulted in share flows additional to the 169 million shares bought and sold on the ASX over
the same period. As such Dark Trades represented a phenomenal 42% of all registry
activity across the 18 months where Dark Trades have been a prominent feature of trading.
A large percentage of wash trades look to have occurred within retail brokers as suggested
by high rates of non-transparent dealings by the likes of Commonwealth Securities, Etrade
and AIEX. Sophisticated investors choosing to trade heavily behind the camouflage offered
by genuine buying and selling of retail investors and behind the camouflage afforded by the
system of settlements makes such activity particularly dubious and could have contributed
to a substantially compromised market.

7.1.1.6 Fund managers engage the services of institutional brokers who provide access to the high speed
automated trading programs that use sophisticated algorithms to deliver control over trading outcomes.
They are widely recognized for their role in front running orders and chiselling gains from retail investors
by making them pay more as buyers and receiving less as sellers.
However, algorithms are also likely to have application for the corporate targeting of companies through:
Control over price movements in general trading (i.e. as measured by Down Tick statistics);
Control over the setting of auction prices;
The programmed use of a variety of broker crossings to help implement trading agendas;
The distribution of prolific numbers of small transactions back and forth between groups of brokers who
supporting each other with their trading (i.e. colluding) perhaps involving algorithms that are somehow
tuned to each other. The cartel like nature of trading has already been widely demonstrated.

ALSO:

Down Ticks (falls in price) may well contain the dna of share price manipulation as practiced on the ASX
with an extraordinarily high level of anomalism associated with their use whereby:
Down Ticks have mainly occurred between a relatively small group of brokers who appear to
alternate between being the buyers and sellers associated with price reductions;
Parcel sizes involved with Down Ticks have been much smaller than the average buy or sell;
The vast majority of Down Ticks have occurred through either:
a. The sellers asking price (the ASK) being accepted, or
b. A broker crossing where a lower price has been deliberately chosen by an algorithm for a
transaction between two broker clients.
In 30 months of trading close to 96% of all reductions in price for CDU have occurred in this way
resulting in only 4% of price falls being associated with a buyer receiving the BID price. (Refer Paper
6.5 Sect 5.4.10.1 and Paper 6.5 Sect 6.5.4.6.1)

Such statistics defy all laws of long term probability where it could be logically argued that over
extended periods of time, Down Ticks ought to be distributed more or less equally between BIDS and
ASKS, and in periods associated with extreme market turmoil (e.g.; Aug 18, 2010) panicked sellers
ought to ensure that a high percentage of Down Ticks would go through at the BID price. That did not
occur and the fact that it didnt suggests that prices were marched downwards by the trading of
sophisticated investors running compatible algorithms, perhaps in a deliberate attempt to unsettle
the market. It also suggests price movements are being purposefully engineered by trading
algorithms rather than being the result of genuine trading decisions by investors instructing their
brokers to accept less.
AND
Auction prices have been consistently controlled by a group of institutional brokers through the use
of trading algorithms and who appear to alternate with each other in dominating auction outcomes.

11

7.1.1.7 CuDeco data associated with securities lending and short selling draws attention to the gross
inadequacy of existing guidelines that sanction short selling. Short selling anomalies were raised in Paper
6.2 Section 1, where registry activity was compared for two periods of voluntary suspension both of which
were associated with funding discussions.
The data is summarized below:

Suspension
Dates 2011
Duration
ASX
Trades
Open Shorts at
the Beginning
Open Shorts
at the End
Registry
OFF Movements
Registry
ON Movements
Period 1 Mar 10-Apr 27 6 weeks 0 974,484 905,776 13,235,858 12,821,839
Period 2 Aug 19-Oct 31 10 weeks 0 1,785,168 1,645,853 6,833,686 6,979,021

The data is somewhat incongruent and suggests either ad hoc management practices in covering
short exposures or possibly illegal shorting activity as per the following:
Assuming that the continuous adjustments to short exposures during suspension were a
legitimate exercise, then it makes no sense that the volumes exchanged for Period 1 (i.e., 6
weeks of suspension) are double that for Period 2 (i.e. a much longer 10 weeks of suspension).
It especially makes no sense given that the short exposure at the beginning of Period 2 was
double that for Period 1 suggesting that legitimate covering operations would need to be much
more pronounced, not reduced.
Research Paper 6.2, Section 1.1.7 also pointed out the absurdity where for 3 separate trading
periods of equal duration to Period 1 above, and where daily volumes averaged around 500,000
shares, the average daily adjustments to short positions were less than what occurred when
zero shares traded.
Whatever the reasons behind the anomalous data, the short covering activity appears far
removed from what might be expected from normal business in a lending environment where
ethical trading practices are meant to be delivered at all times.

7.1.1.8 One of the official justifications for short selling is that it aids efficient price discovery, and that it
earns an income for holders who lend their shares. However during the period covered by research, short
selling is more likely to have been used as a manipulative trading tool to pressure prices than genuine
income generation. The key to the behaviour is the severe undervaluations that resulted in the portfolios
of those who facilitated short selling, only partially offset by any lending fees.

The practice of short selling as applied to CuDeco appears seriously compromised and deeply
suspicious for the following reasons:

o Short selling dramatically increased at a time the Company became substantially de-risked
following announcements to the market regarding finance and mining approvals.
o It has been institutions who have been lending their shares, engaging in short selling and
also buying shares sold short into the market.
o The holdings of lenders who have lent out substantial numbers of shares for short selling
havent shown corresponding decreases on the register.
o Large daily fluctuations in open short positions also arent reflected on the register
suggesting that securities lending arrangements may involve a system of double accounting.
o Large fluctuations in open short positions usually arent reflected in official reporting of net
stock borrowing and net stock lending positions as published by the ASX.
o While large increases in open short positions have been achieved through short selling in
the market, large reductions have been achieved in off-market dealings which have
completely avoided price discovery.
12

o While actively engaged in activities that have pressured share prices, (i.e. trading churn
between themselves including short selling) institutions have also accumulated stock and
have also secured an 8 million share placement from the Company. Their trading resembles
that of a cartel (Refer Chapter 6.5 Executive Summary);
o The chart below shows an escalation in short selling from the moment the Company
became substantially de-risked on Oct 31, 2011 up until early Nov 6, 2011, and then a
decline in short positions up until late February 2013. The reduction in short positions of
around 4.4 million shares occurred without any impact on the share price as most short
covering took place off-market. The share price actually retreated from $4.67 when open
shorts peaked at 6.8 million to $3.70 on Feb 18, 2013 when open shorts stood at 2.4 million.



7.1.1.9 The extent of off-market adjustments to short positions is evident in the trading data associated
with the Companys last suspension during October last year. The voluntary suspension on Oct 23, 2012
again coincided with financial discussions taking place. Trading resumed on Nov 13, 2012 coinciding with a
sudden and dramatic increase in open short positions accompanied by steep share price falls. The funding
proposal was subsequently withdrawn and replaced by a premium placement to Sinosteel in lieu of
payments required for the construction of equipment for the Companys Rocklands mine.
The table that follows summarizes reported data for daily ASX volumes, daily short sales, and daily changes
to open short positions. Unfortunately, the ASX does not supply official data for the extent of daily short
covering taking place in the market.
Nevertheless, estimates for short covering can be made according to the following relationship which
assumes that all short covering is done on-market.
Change to Open Short Positions = Short Sales Short Covering Purchases
Re-arranging gives, Short Covering Purchases = Short Sales Change to Open Positions
0
1
2
3
4
5
6
7
8
M
i
l
l
i
o
n
s

De-risking events - from Oct 31
- Finance then a mining license
Open Short Positions for CDU
Jun 16, 2010 to Feb 22, 2013
Continuous erratic adjustments possibly
signalling unorthodox dealings
Short covering without
price impact commences

13

When the formula is applied to daily trading data, negative values for Short Covering estimates are
considered anomalous and are explained through off-market adjustments to short positions.
Similarly, values for short covering estimates that exceed ASX buying volumes are also considered
anomalous along with short covering volumes that exceed 50% of daily buying. Anomalous values for
short covering estimates all suggest off-market intervention in the management of short exposures.
All anomalous data in the period following suspension has been highlighted by shading. The extent of
shading therefore provides an indication of the amount of off-market adjustments made to short positions.
2011
ASX
Volume
Reported
Short Sales
Reported
Shorts %
Estimated
Covers
Estimated Covers as a
% of ASX Volumes
Open
Shorts
Change to
Shorts
Nov 8 0 0 #DIV/0! -11,861 #DIV/0! 6,842,526 11,861
Nov 9 0 0 #DIV/0! 0 #DIV/0! 6,842,526 0
Nov 12 0 0 #DIV/0! 2,875,000 #DIV/0! 3,967,526 -2,875,000
Nov 13 557,128 161,017 28.9% 179,615 32.2% 3,948,928 -18,598
Nov 14 428,815 85,311 19.9% 91,668 21.4% 3,942,571 -6,357
Nov 15 753,529 351,604 46.7% 451,897 60.0% 3,842,278 -100,293
Nov 16 108,000 10,690 9.9% -148,153 -137.2% 4,001,121 158,843
Nov 19 202,213 37,305 18.4% 240,852 119.1% 3,797,574 -203,547
Nov 20 223,240 60,729 27.2% 34,548 15.5% 3,823,755 26,181
Nov 21 312,843 69,930 22.4% 160,567 51.3% 3,733,118 -90,637
Nov 22 214,203 15,827 7.4% -2,721,932 -1270.7% 6,470,877 2,737,759
Nov 23 78,443 34,352 43.8% 21,338 27.2% 6,483,891 13,014
Nov 26 189,718 46,867 24.7% 29,740 15.7% 6,501,018 17,127
Nov 27 392,758 61,243 15.6% 77,801 19.8% 6,484,460 -16,558
Nov 28 186,221 51,961 27.9% 51,990 27.9% 6,484,431 -29
Nov 29 222,534 106,305 47.8% 250,853 112.7% 6,339,883 -144,548
Nov 30 246,420 48,000 19.5% -145,759 -59.2% 6,533,642 193,759
Dec 3 116,000 39,309 33.9% 98,804 85.2% 6,474,147 -59,495
Dec 4 53,100 9,506 17.9% 249,790 470.4% 6,233,863 -240,284
Dec 5 82,700 14,833 17.9% 3,166,347 3828.7% 3,082,349 -3,151,514
Dec 6 213,000 21,484 10.1% -2,679,752 -1258.1% 5,783,585 2,701,236
Dec 7 101,100 24,993 24.7% 62,232 61.6% 5,746,346 -37,239
Dec 10 121,700 11,722 9.6% 121,233 99.6% 5,636,835 -109,511
Dec 11 112,300 4,503 4.0% -20,502 -18.3% 5,661,840 25,005








Sample Calculations:
1: For Nov 22, Short sales of 15,827 and 2.721,932 shorts added off-market would provide the observed net
increase in open shorts of 2,737,759. Off-market additions therefore equate directly to the negative estimate.
2: For Dec 5, Short Sales of 14,833 require covering purchases of 3,166,347 to cause a decrease in open shorts
of 3,151,514 yet only 50% of ASX buys (i.e. 41,350 shares) are assumed to arise from on-market purchases. It
leaves an additional 3,124,997 covers from off-market reductions.
3: For Dec 3, Short sales of 39,309 matched by 98,804 covers would result in a decrease in short positions of
59,459. However if 50% of the buying was done on-market (i.e. 58,000 shares) it means that an additional
40,804 shorts were covered off-market.
7.1.1.10 The amount of off-market adjustments to short positions can be quantified according to the following.

o Negative values for estimates equate directly to the additional covering that has taken place off-market.
o Where short covering exceeds ASX volumes or where short covering is unrealistically high compared to
ASX volumes analysis has assumed that short covering has been responsible for 50% of daily purchases
with the balance coming from off-market adjustments. It leaves the remaining 50% of daily purchases to
represent normal buying and enables the extent of off-market covering to be quantified.
14

The table below concentrates only on the data that doesnt reconcile satisfactorily and estimates the
number of open positions added off-market and the number of open positions reduced off-market.




ASX
Volumes
Short
Sales

Covering
Estimates
% of ASX
Buying

50% ASX
Volumes

Off-Market
Reductions
Off-Market
Additions

Changes
to Open
Nov-08 0 0 -11,861 #DIV/0! 0 11,861

11,861
Nov-12 0 0 2,875,000 #DIV/0! 0 2,875,000

-2,875,000
Nov-15 753,529 351,604 451,897 60.00% 376,764 75,133

-100,293
Nov-16 108,000 10,690 -148,153 -137.20% 54,000 148,153

158,843
Nov-19 202,213 37,305 240,852 119.10% 101,106 139,746

-203,547
Nov-21 312,843 69,930 160,567 51.30% 156,421 4,146

-90,637
Nov-22 214,203 15,827 -2,721,932 -1270.70% 107,102 2,721,932

2,737,759
Nov-29 222,534 106,305 250,853 112.70% 111,267 139,586

-144,548
Nov-30 246,420 48,000 -145,759 -59.20% 123,210 145,759

193,759
Dec-03 116,000 39,309 98,804 85.20% 58,000 40,804

-59,495
Dec-04 53,100 9,506 249,790 470.40% 26,550 223,240

-240,284
Dec-05 82,700 14,833 3,166,347 3828.70% 41,350 3,124,997

-3,151,514
Dec-06 213,000 21,484 -2,679,752 -1258.10% 106,500 2,679,752

2,701,236
Dec-07 101,100 24,993 62,232 61.60% 50,550 11,682

-37,239
Dec-10 121,700 11,722 121,233 99.60% 60,850 60,383

-109,511
Dec-11 112,300 4,503 -20,502 -18.30% 56,150 20,502

25,005
Totals 2,859,642 6,694,716 5,707,457



Assumed maximums
for on-market
covering
Estimates for
off-market
adjustments
Estimates from
previous table
The estimates reveal that for the days where off-market adjustments were made to open short positions,
off-market activity resulted in 6.69 million shares being reduced (perhaps temporarily from existing holdings
although possibly not impacting the register, an integrity issue in itself) and 5.71 million shares being added
(presumably from increased borrowings, but not necessarily showing up in official data which also
represents an integrity issue).

Importantly, the large volumes of off-market adjustments to short positions seriously compromise the
markets integrity. Compared to the 2.86 million shares that actually traded on the market, off-market
share flows make on-line trading system somewhat irrelevant - or at least ineffective - with large volumes of
potential liquidity deliberately avoiding the market and preventing a fair and proper indication of share
price value between genuine market forces (i.e. true price discovery).

Finally, there is the possibility that reductions in short positions are achieved privately through off-market
transfers that dont show up in securities lending data. If so, such arrangements would need to be assessed
and cleared of any collusion and/or share price manipulation issues. Certainly any dealings that influence
prices upon implementation (e.g.; short selling) and then deliberately side step the market when unwound
can only attract suspicion when brought to notice.
15

7.1.1.11 The extent of non-transparency issues is a major outcome of research whereby official reasurances
about market transparency and about market integrity need to be weighed up against the realities
associated with a system of trading that:
Allows brokers to trade anonymously for 3 days on behalf of anonymous fund managers whose trading
can relate to multiple anonymous accounts in pooled funds whose holdings in turn are held
anonymously in the omnibus custodial accounts managed by the investment banks, and yet added to
all of the camouflaged market activity are large volumes of opaque off-market dealings as well;
Allows broker details, even when revealed after T+3, to convey precious little of substance because of:
o the majority of trades being settled elsewhere, not the brokers responsible for the transactions
in the market, and;
o fund managers deliberately distributing their buying and selling across multiple brokers thus
camouflaging the dominance they have which is brought about by sheer weight of numbers and
through the facilitation of each others trades.
Allows large volumes of Dark Trades and/or Off-Market share flows to take place that are all opaque to
the market and in the case of CuDeco can match the volumes traded on-market;
Tolerates a situation where only 27.6% of the buying and selling by brokers over 2.5 years of trading is
able to be identified on the register next to their clients. It means that the vast majority of broker
trading is settled by other agents on behalf of institutions. Such dealings are non-transparent to the
market in that the link between broker and client is hidden and therefore the massive levels of controls
over trading are very effectively camouflaged.

Such convoluted dealings are largely designed to conceal the identities of those involved however the
flexibilities available to market participants in managing their affairs represent huge contradictions to
claims of genuine and fair trading, transparent dealings, and high levels of efficiency and market integrity.
The extent of non-transparency in ASX dealings means that registry anomalies involving large fluctuations
between the volumes of buying & selling in the market and the volumes of share flows that occur on the
register i.e. as previously quantified in terms of Wash Trades and Dark Trades are likely to be a pointer
to unorthodox and possibly manipulative trading behaviours that are completely camouflaged from view.
Without the auditing of broker and client accounts, such anomalies cannot be properly understood and
any manipulative dealings involved, which potentially could be very large in scope, are likely to be passing
under the radar of regulators and/or blithely accepted without question.

7.1.1.12 Trading in CuDeco has demonstrated a failure by the market system to perform the role expected
of it and that is to provide fair price discovery between genuine buyers and genuine sellers. Examples that
demonstrate persistent share price undervaluations include:
The Company capitalizing on undervalued prices through extensive Buy Back programs and then
re-issuing shares at higher prices,
The Company consistently raising funds at strong premiums to the share price;
The Company having a major supplier (Sinosteel) willingly take shares at a premium to the share
price in lieu of cash for engineering services, and;
Comparisons to peers given an initial 10 year open cut operation with a measured and indicated
resource boasting robust project economics, infrastructure advantages and with all approvals in
place to proceed.

16



Section 7.1.2
A REVIEW OF LYNAS CORPORATION LTD TRADING
(ASX CODE: LYC)
17

7.1.2.1 LYNAS CORPORATION LTD (LYC) Share Price and Open Short trends from Jun 16, 2010 to Dec 31, 2012
The chart spans the period commencing from when ASIC started reporting daily open short positions on
June 16, 2010 up until the end of December 2012, a period of almost 2.5 years.























7.1.2.2 BACKGROUND INFORMATION CONCERNING LYNAS CORPORATION

(Re: ASX Company Announcements Sept 5, 2011 and Jan 7, 2013)
Sept 5, 2011: Lynas owns the richest known deposit of Rare Earths, also known as Lanthanides, in the world
at Mount Weld, near Laverton in Western Australia. This deposit underpins Lynas strategy to create a
reliable, fully integrated source of Rare Earths supply from the mine through to customers in the global
Rare Earths industry. Lynas will concentrate the ore mined at Mount Weld and ship it to Malaysia for
processing.

0
50
100
150
200
250
M
i
l
l
i
o
n
s


Share Price
$2.40


$2.00


$1.60



$1.00


$0.60


$0.20
Open Shorts
250 mill
200 mill
150 mill

100 mill
50 mill

10


Jun 16

13
The 2.5 year decline in
price has seen the share
price lose 76% of its value


Massive short covering but without
an impact on the share price
1
2
3
4
18

Also
Jan 7, 2013: Lynas Corporation is pleased to announce the successful commissioning of the cracking and
leaching rare earth extraction units at the Lynas Advanced Material Plant (LAMP) in Malaysia. The
mixed rare earths sulphate is now being fed into the solvent extraction units for ultimate production of
individual Rare Earth products. Lynas anticipates commercial rare earth products will be available in the
next few weeks with ramp up of production to take place over the next three months.


The Lynas rare earths project has had a history of being surrounded by uncertainties concerning funding
and clearances for the processing of concentrate in Malaysia. Local groups have applied through the
Malaysian judicial system to have the project stopped and the uncertainty has been fed by frequent media
rumours. The situation has meant that there has been ample opportunity for traders to generate share
price volatility with institutional brokers at the forefront of all trading. However, despite all of the
supposed uncertainties the reality is that the project is now fully funded into production and at an
advanced stage of development with all necessary clearances in place to proceed to full production.

7.1.2.3 TRADING VOLATILITY:
Major trading volatility in Lynas has generally occurred without an obvious or rational trigger point.
Volumes have spiked to well over 100 million shares on several occasions and appear to be more related to
institutional trading agendas rather than significant news events. Reported Company developments (if any)
coinciding with the volume spikes numbered 1 to 4 above are summarized as follows:

Volume Spike 1: May 31, 2011 reveals a counter intuitive response to good news in the form of the
Company gaining access to finance. The share price declined as shorts increased on a
day where volumes leapt to around 150 million shares.
Volume Spike 2: Sept 22, 2011 shows falls for no particular reason. In response to a please explain
from the ASX the Company provided clarification referring to an expectation for
future operating losses. The disclosure is not unusual for a Company positioning itself
to be in production, and a situation well understood by sophisticated investors.
Volume Spike 3: On Sept 5, 2012 the granting of a Temporary Mining License resulted in an upward
spike in the share price and an increase in shorting levels.
Volume Spike 4: On Nov 30, 2012 first feed to the kiln was announced a significant operational
achievement following which over 100 million short positions were unwound as the
share price surprisingly retreated.
COMMENT:

The three key elements of trading in Lynas Corporation Ltd have been:
The steadily increasing open short position over an extended period of time;
Continuous declines in the share price over the same period with the share price severely reduced in
value, and;
The removal of a large short position without impact to the share price.
Trading churn where major holders have generally retained their shares while pushing large amounts
of stock churn through the market (i.e. selling & buying at the same time without significant changes to
ownership)

19

Trading in Lynas spells out the perilous nature of short selling as practiced on the ASX with professional
fund managers sacrificing the holdings of their clients by facilitating short selling and thereby contributing
to the large portfolio losses that have occurred. In return, clients would have received lending fees that
would be miniscule by comparison to portfolio losses. There is a contradiction here with fund managers
seemingly sacrificing client holdings in favour of industry colleagues heavily engaged in short selling. At the
same time they would have earned fees and commissions on all losing transactions for their clients and
commissions on the immense levels of back and forth trading churn they have put through the market.

The bottom line is that the holdings of clients whose shares have been lent out by fund managers, have all
but been obliterated in value with an overall 76% decline in the LYC share price over the period reviewed.

Apart from client funds under management the losses facilitated by short selling have also impacted retail
investors and traditional long term investors and raises questions concerning share price manipulation,
particularly with the unwinding of a large short position without price impact in Dec 2012. The unwinding
suggests collusion between fund managers with shares being made available off-market and/or on-market
so that entities with short exposure can conveniently cover their positions.

Certainly it makes no logical sense for fund managers to sacrifice client holdings in support of colleagues
reducing their commitments. This is because if they were forced to cover on-market, the price discovery
associated with the re-purchase of shares would most likely be far different and portfolios would increase.

The other aspect of manipulation relates to the management of the share price over extended periods of
time so that short exposures remain at acceptable levels i.e. acceptable for the borrowers of shares.
Perhaps it is the endless back and forth buying and selling supplied to the market (often referred to as
trading churn) that helps to keep share prices capped and short exposures contained? That type of trading
is particularly suspicious especially when it doesnt involve changes to beneficial ownership.

The trading in Lynas has also shown that it is possible to factor in significant news or even spurious
rumours in a single day of frenzied trading, yet large bets as to the share price being overvalued have
required up to 2.5 years before being resolved. Again, the situation doesnt make any logical sense and nor
does the fact that trading in Lynas has been so problematical and fuelled by doubts about its ability to
deliver a major rare earths project. The reality according to official Company reporting is that the Company
is extremely well placed to get into production with all approvals in place and with all objections dealt with
by the courts in Lynas favour.

If trading anomalies regarding CuDeco represents a situation where manipulative trading is likely to have
held sway, then trading anomalies with Lynas may represent another prime candidate for a thorough
investigation as well.

7.1.2.4 PROLIFIC TRADING
Lynas is a much talked about and much traded stock with a constant flow of rumours concerning
development issues, perceived sovereign risk issues and legal issues associated with organized protest
groups in Malaysia who are attempting to put a stop to development. All have contributed to uncertainty
and have helped to fuel high levels of trading volatility. The volume of shares traded is extremely high with
over 1.7 million shares on issue helping to make Lynas an extremely liquid stock.

The number of shares traded between the beginning of January 2010 and the end of December 2012 was a
massive 20,947,287,100 shares which equates to 21 Billion shares. The daily average volume over the
same period was 25.5 million shares.

With all of the trading taking place it is of interest to observe changes that have occurred to the register as
per the summaries for 2010, 2011 and 2012 that follow.
20

7.1.2.5.1 LYNAS CORPORATION (LYC) REGISTRY CHANGES (from 2010, 11 & 12 Annual Report Top 20 Lists)
Institutional holdings have been shaded to distinguish them from private company holdings and individual
holdings. Multiple holdings of the same institution within the Top 20 lists have been combined.

LYC Top 20 SHAREHOLDERS 2010 2011 2012
HSBC Nominees 490,388,518 480,053,780 276,093,124
J P Morgan 305,629,758 427,541,736 335,437,244
Citicorp Nominees 118,604,930 89,145,387 107,768,260
National Nominees 86,984,325 149,382,705 143,585,176
ANZ Nominees 73,770,494 - -
Woodross Nominees 50,474,832 - -
Merrill Lynch Nominees 20,656,771 4,252,292 12,662,843
Credit Suisse Europe 11,910,000 - -
UBS Nominees 9,834,609 - -
AMP Life 9,809,595 8,793,180 8,159,338
Equity Trustees Ltd 8,438,618 - -
ABN Amro Nominees - 8,129,264 7,033,724
BNP Paribas - - 18,966,215
Cogent Nominees - 4,557,513 -
QLD Invest Corp - 5,235,314 -
Share Direct Nominees - - 7,751,948
Nicholas Curtis 13,112,519


Congan Yue 11,490,264 11,000,000 10,200,000
Lando P/L 10,250,000 9,400,000 9,400,000
Nyco Pty Ltd 9,440,000 9,902,673 9,902,673
Phillip Securities HK 9,300,000 - -
Aliano P/L - 7,130,000 6,280,000
Japan Australia Rare earths - 10,972,275 10,972,275
Lynas Emp Plan - 6,931,606 -
Silmar P/L (Super Accounts) - 5,742,406 -
TECR P/L - 2,142,828 -
UOB KAY HIAN -

10,642,500
2010 2011 2012
Total Register 1,656,999,093 1,713,846,913 1,716,129,131
Top 20 1,240,095,233 1,240,312,959 974,855,320
Top 20 % 74.80% 72.40% 56.80%
Institutions 1,186,502,450 1,177,091,171 917,457,872
% Top 20 95.7% 94.9% 94.1%
% Register 71.6% 68.7% 53.5%

7.1.2.5.2 COMPOSITION OF THE LYNAS REGISTER

2010 2011 2012
Holding Size Holders Shares Holders Shares Holders Shares
1-1,000 1,627 1,118,968 5,435 3,517,913 5,411 3,538,499
1,001-5.000 4,537 14,009,826 11,865 34,899,368 12,498 37,399,455
5.001-10.000 2,885 24,023,281 5,674 43,861,500 6,872 54,552,593
10,001-100.000 4,522 145,733,221 7,147 196,263,106 10,220 301,320,435
100.001and over 592 1,472,113,797 701 1,435,305,026 1,126 1,319,318,149
Total 14,163 1,656,999,093 30,822 1,713,846,913 36,127 1,716,129,131

Institutions have consistently dominated the register claiming holding around 95% of the Top 20 holdings
each year and around 70% of the entire register during 2010 and 2011. However there has been some
distribution from institutional holdings during 2012 where 200 million institutional shares found their way
into smaller holdings. It remains to be seen if the smaller holdings are still controlled by institutions or
whether they are in the hands of private companies or retail investors.

Institutions have consistently
accounted for around 95% of the
Top 20 Shareholdings although
their share of the total register
dropped in 2012 to 53.5% after
averaging around 70% for the two
preceding years.

Institutional holdings shed nearly
260 million shares in 2012 with
distribution mainly into holdings of
parcel sizes 10,001 to 100,000
shares (see below)
Large transfers of shares such as
the selling down by ANZ Nominees
and the gain by JP Morgan draw
attention to the likelihood that a
great deal of co-operation and/or
collusion exists between
institutional fund managers.

Similarly, a degree of co-operation
looks to be involved with shares
sold by Merrill, Credit Suisse, UBS,
Citicorp and Equity Trustees in
2011 making their way across to
National, ABN Amro, Cogent, JP
Morgan and QLD Investment
Corporation.
21

7.1.2.6.1 LYNAS CORPORATION SHORT SELLING DATA ANOMALIES:
Chart Jan 1, 2012 to Jan 21, 2013

PERIOD 1: (Aug 29, 2012 to Oct 29, 2012)
Period 1 features a substantial increase in open short positions, then a levelling out phase that was
accompanied by extreme fluctuations in short positions. The fluctuations are evidenced by the spikes and
subsequent recoveries on the chart.
PERIOD 2: (Nov 13, 2012 to Jan 21, 2013)
Period 2 features a very substantial reduction in open short positions of about 125 million shares, during
which time the share price remained remarkably restrained given the large volumes put through the market.

7.1.2.6.2 SHORT COVER ESTIMATES
The ASX reports on daily short sales and ASIC reports on daily changes to open short positions although
there are no official reports on the levels of daily short covering purchases taking place. However estimates
of short covers can be made using the short selling data and the changes to open short position data.
Estimates assume that changes to open short positions ought to represent the difference between short
sales implemented in the market and short covering purchases that are also conducted in the market.
i.e., Change to Short Positions = Short Sales - Short Covers
The relationship can be re-stated in terms of Short Covers as follows:
Short Covers = Short Sales - Change to Short Positions
When the formula is applied to ASX short selling data and ASIC open short data there are many instances
where estimates for short covering purchases dont make sense. In such cases the estimates for short
covering purchases may be:
Negative (where a negative number of purchases is actually meaningless), or;
Greater than the level of actual purchases that took place in the market (also meaningless), or;
Excessive and unrealistic in that they equate to nearly all of the buying that has taken place.
Estimates that dont make a lot of sense have been referred to as being anomalous. The reason for
anomalies in short cover estimates is because short covering doesnt always take place on-market.
0
50
100
150
200
250
M
i
l
l
i
o
n
s

Aug 29, 2012 to
Oct 29, 2012
Period 1 Period 2
Nov 13, 2012
to Jan 21, 2013
Open Short
Positions
22

Off-market adjustments are also a regular feature of the day to day management of short positions. The
extent of anomalies in short cover estimates therefore provides a measure as to the extent of off-market
adjustments taking place. It also provides a window into market integrity as off-market adjustments avoid
price discovery and can lead to distortions in prices possibly an undervalued share price in the case of LYC.
7.1.2.6.3 PERIOD 1: SHORT COVER ESTIMATES
In the table for Period 1 blow, negative data for short covers or short covers exceeding actual ASX trading
volumes (i.e. anomalous data) have been highlighted using pink shading. Estimates that equate to
unrealistic levels of short covering in the sense that they would account for nearly all buying that has taken
place are also highlighted - yellow shading has been used.
It needs to be borne in mind that the extent of shading is in effect an indicator of the amount of off-market
activity involved in the management of short positions.

Period 1
2012
Total ASX
Sales
ASX Short
Sales
Shorts %
ASIC Open
Positions
Change to Open
Short Positions
Estimated
Short Covers
Covers as a % of
ASX Volumes
Aug 29 43,090,300 3,684,055 8.5% 188,162,111 -2,045,313 5,729,368 13.3%
Aug 30 27,132,000 3,169,187 11.7% 187,660,152 -501,959 3,671,146 13.5%
Aug 31 13,221,900 2,158,354 16.3% 189,574,888 1,914,736 243,618 1.8%
Nov 3 25,401,600 5,872,010 23.1% 193,355,921 3,781,033 2,090,977 8.2%
Nov 4 16,634,600 3,906,089 23.5% 194,606,019 1,250,098 2,655,991 16.0%
Nov 5 22,641,800 2,938,620 13.0% 195,038,047 432,028 2,506,592 11.1%
Nov 6 153,098,600 38,462,558 25.1% 213,792,537 18,754,490 19,708,068 12.9%
Nov 7 57,361,300 14,529,992 25.3% 224,102,519 10,309,982 4,220,010 7.4%
Nov 10 41,086,500 14,934,251 36.3% 232,446,240 8,343,721 6,590,530 16.0%
Nov 11 14,362,900 960,134 6.7% 219,041,604 -13,404,636 14,364,770 100.0%
Nov 12 20,847,400 2,155,315 10.3% 228,770,062 9,728,458 -7,573,143 -36.3%
Nov 13 32,119,800 6,602,042 20.6% 230,298,789 1,528,727 5,073,315 15.8%
Nov 14 23,850,300 2,191,178 9.2% 230,817,022 518,233 1,672,945 7.0%
Nov 17 12,748,400 2,986,890 23.4% 233,087,525 2,270,503 716,387 5.6%
Nov 18 11,440,600 1,698,997 14.9% 232,609,223 -478,302 2,177,299 19.0%
Nov 19 19,430,500 1,696,472 8.7% 235,779,914 3,170,691 -1,474,219 -7.6%
Nov 20 15,101,400 3,389,043 22.4% 222,999,735 -12,780,179 16,169,222 107.1%
Nov 21 15,376,000 2,493,199 16.2% 235,639,751 12,640,016 -10,146,817 -66.0%
Nov 24 7,772,900 1,940,931 25.0% 236,834,229 1,194,478 746,453 9.6%
Nov 25 24,326,900 6,545,071 26.9% 233,321,967 -3,512,262 10,057,333 41.3%
Nov 26 21,401,200 2,854,876 13.3% 232,301,720 -1,020,247 3,875,123 18.1%
Nov 27 17,750,600 2,583,647 14.6% 229,737,544 -2,564,176 5,147,823 29.0%
Nov 28 11,198,300 1,713,518 15.3% 229,808,029 70,485 1,643,033 14.7%
Oct 1 6,127,700 2,187,136 35.7% 228,884,942 -923,087 3,110,223 50.8%
Oct 2 6,843,900 1,289,337 18.8% 229,289,910 404,968 884,369 12.9%
Oct 3 10,065,600 1,738,996 17.3% 232,161,861 2,871,951 -1,132,955 -11.3%
Oct 4 24,226,300 4,000,815 16.5% 232,904,780 742,919 3,257,896 13.4%
Oct 5 6,860,500 1,798,778 26.2% 233,626,702 721,922 1,076,856 15.7%
Oct 8 6,137,000 1,418,401 23.1% 234,744,456 1,117,754 300,647 4.9%
Oct 9 7,684,800 1,972,309 25.7% 233,910,058 -834,398 2,806,707 36.5%
Oct 10 10,074,300 2,195,015 21.8% 233,525,130 -384,928 2,579,943 25.6%
Oct 11 53,259,400 7,227,292 13.6% 194,791,957 -38,733,173 45,960,465 86.3%
Oct 12 16,356,100 2,701,175 16.5% 139,123,565 -55,668,392 58,369,567 356.9%
Oct 15 26,645,700 3,263,925 12.2% 217,249,560 78,125,995 -74,862,070 -281.0%
Oct 16 15,610,900 2,734,823 17.5% 225,980,579 8,731,019 -5,996,196 -38.4%
Oct 17 29,296,600 9,842,298 33.6% 160,071,407 -65,909,172 75,751,470 258.6%
Oct 18 23,937,300 1,938,533 8.1% 202,901,696 42,830,289 -40,891,756 -170.8%
Oct 19 19,682,300 1,355,366 6.9% 233,267,081 30,365,385 -29,010,019 -147.4%
Oct 22 19,525,500 1,505,387 7.7% 234,522,559 1,255,478 249,909 1.3%
Oct 23 10,914,800 2,958,008 27.1% 231,452,850 -3,069,709 6,027,717 55.2%
Oct 24 9,338,800 2,237,323 24.0% 230,639,967 -812,883 3,050,206 32.7%
Oct 25 7,047,600 1,508,890 21.4% 228,702,548 -1,937,419 3,446,309 48.9%
Oct 26 13,468,300 7,513,531 55.8% 212,530,458 -16,172,090 23,685,621 175.9%
Oct 29 13,877,600 2,732,673 19.7% 217,029,726 4,499,268 -1,766,595 -12.7%

Data that
reconciles
Anomalous
data
Data that
reconciles
Anomalous
data
A
B
A - B
The off-market management of short positions is seen to be extremely active throughout Period 1, a critical trading
period where large adjustments to open short positions have occurred.
23

7.1.2.6.4 OPEN SHORTS COMPARED TO STOCK LENDING & STOCK BORROWING DATA:
Market integrity can also be gauged by comparing changes in Open Short positions with changes in Net
Borrowings and changes in Net Lending as explained by the ASX on their website.
The reports detailing the net outstanding borrowing and lending positions, which exclude intermediary lending
activity, are likely to more closely reflect the net demand for borrowed securities. <LINK>
Logically it would therefore be expected that a large increase in Open Positions should translate to both a
large increase in Net Borrowings and a large increase in Net Lending. Similarly, large reductions in Open Short
positions ought to correspond to large falls in both Net Borrowings and Net Lending.

Stock lending data and stock borrowing data corresponding to some of the trading associated with Period 1
are summarized in the tables that follow. The first table looks at unshaded data (i.e. where data appears to
reconcile) , and the second table concentrates on trading where there were significant amounts of shaded
data (i.e. high levels of off-market intervention).





1
st
Data Set: (Aug 29 to Sep 10, 2012): featuring data that appears to reconcile on a daily basis.

Net Borrowing & Net Lending data in the table below that does not reasonably correspond to Open Short
Position movements has been highlighted using green shading.

2012
Changes to
Open Positions
Gross
Borrowings
Change
Net
Borrowings
Change to Net
Borrowings
Gross
Lending
Change
Net
Lending
Change to
Net Loans
Aug 29 -2,045,313 229,005,669 -1,877,352 126,810,242 52,446 201,047,273 343,438 98,851,846 2,273,236
Aug 30 -501,959 233,979,650 4,973,981 127,182,040 371,798 205,355,388 4,308,115 98,557,778 -294,068
Aug 31 1,914,736 237,693,237 3,713,587 131,183,949 4,001,909 205,300,098 -55,290 98,790,810 233,032
Sep 3 3,781,033 240,477,359 2,784,122 132,699,842 1,515,893 204,945,375 -354,723 97,167,858 -1,622,952
Sep 4 1,250,098 240,081,319 -396,040 133,379,473 679,631 205,565,794 620,419 98,863,948 1,696,090
Sep 5 432,028 239,433,624 -647,695 133,701,299 321,826 205,063,485 -502,309 99,331,160 467,212
Sep 6 18,754,490 242,734,764 3,301,140 136,165,240 2,463,941 205,001,209 -62,276 98,431,685 -899,475
Sep 7 10,309,982 243,665,942 931,178 140,324,404 4,159,164 200,552,452 -4,448,757 97,210,914 -1,220,771
Sep 10 8,343,721 245,646,706 1,980,764 141,501,752 1,177,348 201,165,680 613,228 97,020,726 -190,188

2nd Data Set: (Oct 11 to Oct 23, 2012): featuring anomalous data where off-market adjustments were a
regular feature of day to day changes.
Again, Net Borrowing & Net Lending data that does not reasonably correspond to Open Short movements
has been highlighted by green shading.

2012
Changes to
Open Positions
Gross
Borrowings
Change
Net
Borrowings
Change to Net
Borrowings
Gross
Lending
Change
Net
Lending
Change to
Net Loans
Oct 11 -38,733,173 229,037,144 -18,504,588 131,579,334 -19,907,320 204,501,035 1,402,732 107,043,22
5
0
Oct 12 -55,668,392 248,932,366 19,895,222 151,652,591 20,073,257 203,753,467 -747,568 106,473,69
2
-569,533
Oct 15 78,125,995 248,453,921 -478,445 148,571,523 -3,081,068 207,308,723 3,555,256 107,426,32
5
952,633
Oct 16 8,731,019 249,554,011 1,100,090 149,102,153 530,630 208,378,183 1,069,460 107,926,32
5
500,000
Oct 17 -65,909,172 244,184,796 -5,369,215 143,903,821 -5,198,332 202,189,464 -6,188,719 101,908,48
9
-6,017,836
Oct 18 42,830,289 244,202,566 17,770 144,447,153 543,332 203,166,193 976,729 103,410,78
0
1,502,291
Oct 19 30,365,385 246,672,330 2,469,764 142,921,087 -1,526,066 207,313,023 4,146,830 103,561,78
0
151,000
Oct 22 1,255,478 245,268,131 -1,404,199 143,847,257 926,170 205,482,654 -1,830,369 104,061,78
0
500,000
Oct 23 -3,069,709 246,890,045 1,621,914 149,348,667 5,501,410 202,119,010 -3,363,644 104,577,63
2
515,852

Note: For Aug 29 below, Gross Borrowings of 229 mill shares with Net Borrowings of 126.8 mill shares suggest that entities borrowing
shares are also on-lending a good portion of the borrowed shares to other clients. Presumably this is done to facilitate short selling
and to help out in other areas such as commitments regarding settlements. Similarly, lenders of shares also tend to borrow shares
themselves thus requiring a Net Loan position to more accurately assess lending. The ASX have indicated what occurs with borrowing
& lending with mention of intermediary brokers such as A lending to B who on-lends to C and the process could extend as well. Suffice
to say that the situation can be extremely complex and difficult to monitor.
ASIC DATA ASX DATA ASX DATA
Official data corresponding to all of Period 1 is extremely contradictory and therefore raises significant doubts about market integrity.
24

7.1.2.6.5 CHARTS PERIOD 1: Open Short Positions and Share Price comparisons
Open Short Position Chart







Share Price Chart



PERIOD 2: (Nov 13, 2012 to Jan 21, 2013)


7.1.2.6.6 PERIOD 2: SHORT COVER ESTIMATES
The trading associated with Period 2 featured a very substantial decrease in open short positions (i.e. a
78.6 million reduction) during which time the share price remained remarkably restrained given the size of
the reduction and the large volumes of shares traded in the market.
Period 2
2012
Total ASX
Volumes
ASX Short
Sales
Shorts as a
% of Sales
ASIC Open
Positions
Change to Open
Short Positions
Estimated
Short Covers
Covers as a % of
ASX Volumes

Nov-13 46,567,300 15,441,136 33.2% 227,789,272 11,271,270 4,169,866 9.0%
Nov-14 0 0 na 226,879,733 -909,539 909,539 na
Nov-15 63,393,400 17,725,453 28.0% 234,887,954 8,008,221 9,717,232 15.3%
Nov-16 56,622,000 9,873,760 17.4% 230,022,556 -4,865,398 14,739,158 26.0%
Nov-19 60,029,500 7,310,789 12.2% 213,367,262 -16,655,294 23,966,083 39.9%
Nov-20 41,169,700 7,744,304 18.8% 211,613,390 -1,753,872 9,498,176 23.1%
Nov-21 19,474,800 3,805,087 19.5% 217,054,030 5,440,640 -1,635,553 -8.4%
Nov-22 40,502,900 7,200,475 17.8% 215,617,483 -1,436,547 8,637,022 21.3%
Nov-23 45,257,300 6,461,039 14.3% 213,303,805 -2,313,678 8,774,717 19.4%
Nov-26 27,265,700 2,106,742 7.7% 207,037,666 -6,266,139 8,372,881 30.7%
Nov-27 50,695,200 4,451,239 8.8% 190,931,168 -16,106,498 20,557,737 40.6%
Nov-28 21,498,600 2,435,309 11.3% 192,667,599 1,736,431 698,878 3.3%
Nov-29 15,542,800 2,400,677 15.4% 186,264,485 -6,403,114 8,803,791 56.6%
Nov-30 220,650,300 7,208,270 3.3% 166,398,095 -19,866,390 27,074,660 12.3%
Dec-03 44,739,400 4,863,372 10.9% 153,664,194 -12,733,901 17,597,273 39.3%
Dec-04 34,583,900 418,243 1.2% 156,864,554 3,200,360 -2,782,117 -8.0%
Dec-05 30,726,800 1,267,296 4.1% 156,908,355 43,801 1,223,495 4.0%
Dec-06 16,316,000 422,605 2.6% 165,434,211 8,525,856 -8,103,251 -49.7%
Dec-07 15,875,600 719,076 4.5% 164,348,040 -1,086,171 1,805,247 11.4%
Dec-10 15,311,300 9,612,697 62.8% 165,026,204 678,164 8,934,533 58.4%
Dec-11 0 0 na 165,084,896 58,692 -58,692 na
Dec-12 28,419,600 5,915,395 20.8% 152,171,158 -12,913,738 18,829,133 66.3%
Dec-13 17,156,300 7,170,666 41.8% 147,853,871 -4,317,287 11,487,953 67.0%

120
140
160
180
200
220
240
260
M
i
l
l
i
o
n
s


$0.50
$0.70
$0.90
$1.10

Very substantial volumes of
shares continuously trading back
and forth were accompanied by
large changes to short positions.
Yet the share price was
constricted throughout.

The ready supply of selling to
willing buyers is suggestive of
collusion taking place between
institutional fund managers with
the shares retained by
institutions as a group. The
intensive buying & selling
appears to be non-genuine.

Stock lending data and stock
borrowing data bears little
correlation to changes in open
short positions suggesting that
official data is grossly inaccurate.
High volumes of off-market
adjustments not accurately
recorded would therefore make
fair price discovery extremely
problematical.
CONCERNS
A 90+ million fall in open short positions
coincided with a 20 cent fall in the share price
The reinstatement of short
positions resulted in a flat
share price response
The above trading behaviours are the exact opposite to what would be logically expected from a fair market. Short
covering should support share prices, not encourage them to fall, and short selling should lower share prices.

25

Period 2
2012
Total ASX
Volumes
ASX Short
Sales
Shorts as a
% of Sales
ASIC Open
Positions
Change to Open
Short Positions

Estimated
Short Covers
Covers as a % of
ASX Volumes
Dec-14 29,620,100 8,230,108 27.8% 147,165,550 -688,321 8,918,429 30.1%
Dec-17 24,122,800 6,200,575 25.7% 150,730,705 3,565,155 2,635,420 10.9%
Dec-18 24,078,300 2,170,145 9.0% 131,847,163 -18,883,542 21,053,687 87.4%
Dec-19 42,142,800 3,584,487 8.5% 132,572,467 725,304 2,859,183 6.8%
Dec-20 30,892,700 1,259,218 4.1% 131,135,584 -1,436,883 2,696,101 8.7%
Dec-21 29,864,100 3,108,750 10.4% 117,423,342 -13,712,242 16,820,992 56.3%
Dec-24 6,154,100 1,022,909 16.6% 120,099,075 2,675,733 -1,652,824 -26.9%
Dec-27 4,292,500 455,594 10.6% 129,208,391 9,109,316 -8,653,722 -201.6%
Dec-28 6,149,100 856,405 13.9% 129,870,141 661,750 194,655 3.2%
Dec-31 4,422,100 527,769 11.9% 132,460,480 2,590,339 -2,062,570 -46.6%
Jan-02 14,100,200 1,327,328 9.4% 133,026,208 565,728 761,600 5.4%
Jan-03 24,324,100 2,002,579 8.2% 132,769,475 -256,733 2,259,312 9.3%
Jan-04 8,192,300 1,113,628 13.6% 133,188,988 419,513 694,115 8.5%
Jan-07 58,450,200 3,388,583 5.8% 132,054,244 -1,134,744 4,523,327 7.7%
Jan-08 36,102,200 2,829,206 7.8% 131,131,588 -922,656 3,751,862 10.4%
Jan-09 13,548,700 1,452,815 10.7% 127,640,760 -3,490,828 4,943,643 36.5%
Jan-10 19,834,700 4,188,050 21.1% 128,405,329 764,569 3,423,481 17.3%
Jan-11 19,841,000 5,314,557 26.8% 128,612,425 207,096 5,107,461 25.7%
Jan-14 17,280,800 8,729,409 50.5% 135,703,112 7,090,687 1,638,722 9.5%
Jan-15 15,263,000 4,437,468 29.1% 137,331,037 1,627,925 2,809,543 18.4%
Jan-16 24,171,900 8,451,343 35.0% 145,433,894 8,102,857 348,486 1.4%
Jan-17 24,309,300 6,862,788 28.2% 148,297,133 2,863,239 3,999,549 16.5%
Jan-18 14,849,600 4,609,651 31.0% 153,366,945 5,069,812 -460,161 -3.1%
Jan-21 7,268,000 538,344 7.4% 149,219,991 -4,146,954 4,685,298 64.5%

Of the 47 trading days listed, 12 days are associated with anomalies in reconciling short sales with open
short positions; anomalies introduced by off-market adjustments. It equates to 25% of the data. However
when open short positions are compared to lending and borrowing data as in the table that follows for the
period Dec 17 to Jan 21, wide variances in data suggest that the number of days impacted by off-market
activity may be considerably more than the 25% outlined above.
Again, Net Borrowing & Net Lending data that does not reasonably correspond to Open Short movements
has been highlighted by shading, further drawing attention to ongoing market integrity issues.

7.1.2.6.7 PERIOD 2: OPEN SHORTS COMPARED TO STOCK LENDING & STOCK BORROWING DATA:

Period 2
2012
Changes to
Open Positions
Gross
Borrowings
Change
Net
Borrowings
Change to Net
Borrowings
Gross
Lending
Change
Net
Lending
Change to
Net Loans
Dec 17 3,565,155 207,501,399 1,030,744 100,698,722 2,426,111 198,327,955 -1,534,142 91,525,278 -138,775
Dec 18 18,883,542 208,858,697 1,357,298 101,142,121 443,399 195,741,854 -2,586,101 88,025,278 -3,500,000
Dec 19 725,304 210,085,630 1,226,933 102,428,153 1,286,032 196,561,530 819,676 88,904,053 878,775
Dec 20 1,436,883 215,423,674 5,338,044 107,655,744 5,227,591 197,421,983 860,453 89,654,053 750,000
Dec 21 13,712,242 208,116,033 -7,307,641 100,220,380 -7,435,364 183,524,848 -
13,897,13
5
75,629,195 -14,024,858
Dec 24 2,675,733 226,428,630 18,312,597 118,339,210 18,118,830 185,229,615 1,704,767 77,140,195 1,511,000
Dec 27 9,109,316 222,879,402 -3,549,228 115,446,472 -2,892,738 184,373,125 -856,490 76,940,195 -200,000
Dec 28 661,750 225,466,345 2,586,943 119,003,486 3,557,014 186,949,815 2,576,690 80,486,956 3,546,761
Dec 31 2,590,339 223,481,170 -1,985,175 108,831,668 -10,171,818 194,696,904 7,747,089 80,047,402 -439,554
Jan 2 565,728 223,393,840 -87,330 110,275,564 1,443,896 192,982,006 -1,714,898 79,863,730 -183,672
Jan 3 256,733 223,994,840 601,000 110,894,255 618,691 197,454,315 4,472,309 84,353,730 4,490,000
Jan 4 419,513 227,286,802 3,291,962 114,290,751 3,396,496 199,687,885 2,233,570 86,691,834 2,338,104
Jan 7 1,134,744 228,531,800 1,244,998 116,157,057 1,866,306 201,576,577 1,888,692 89,201,834 2,510,000
Jan 8 922,656 227,191,321 -1,340,479 115,213,586 -943,471 201,178,569 -398,008 89,200,834 -1,000
Jan 9 3,490,828 223,690,726 -3,500,595 115,904,852 691,266 197,356,708 -3,821,861 89,570,834 370,000
Jan 10 764,569 197,300,034 -26,390,692 114,144,570 -1,760,282 173,706,785 -
23,649,92
3
90,551,321 980,487
Jan 11 207,096 204,743,066 7,443,032 120,893,912 6,749,342 174,770,475 1,063,690 90,921,321 370,000
Jan 14 7,090,687 179,548,276 -25,194,790 101,192,786 -19,701,126 172,967,958 -1,802,517 94,612,468 3,691,147
Jan 15 1,627,925 185,312,136 5,763,860 105,385,572 4,192,786 174,205,193 1,237,235 94,278,629 -333,839
Jan 16 8,102,857 188,192,527 2,880,391 106,706,796 1,321,224 177,833,877 3,628,684 96,348,146 2,069,517
Jan 17 2,863,239 190,984,982 2,792,455 109,726,937 3,020,141 178,453,056 619,179 97,195,011 846,865
Jan 18 5,069,812 191,120,478 135,496 109,845,743 118,806 180,439,099 1,986,043 99,164,364 1,969,353
Jan 21 4,146,954 178,918,447 -12,202,031 98,095,756 -11,749,987 178,847,701 -1,591,398 98,025,010 -1,139,354
ASIC DATA ASX DATA ASX DATA
26

7.1.2.6.8 COMMENT:
The data demonstrates large disconnects between reported changes to open positions and the borrowing
and lending of stock that supports short selling. In fact there are many peculiarities associated with the
trading data that could only really be explained through extensive audits. It is quite extraordinary, for
example, that the increase of 18.9 million shares in open positions on Dec 18 just isnt reflected by changes
in net borrowing at all and net lending data show a decrease of 3.5 million shares.
Also, on Dec 21, 208.1 million shares were borrowed but net borrowings were 100.2 million shares
indicating 107.9 million shares were on-lent. Net borrowings showed a decrease of 7.4 million shares from
the previous day yet changes to short positions showed an increase of 13.7 million shares which is the
opposite to what borrowing data would suggest. Furthermore, the increase in open shorts of 13.7 million
shares corresponded to a decrease of 14.02 million shares in net lending on the same day An increase in
lending would be expected to accompany an increase in open short positions not a decrease.
The figures simply dont compute. A decrease in lending should be mirrored by a decrease in borrowings of
the same order, and hopefully a commensurate decrease in open positions as well. The mismatch in the
data is unacceptable and casts a blanket of confusion over what is actually taking place in the market.
Dec 21 is not an isolated example. Daily borrowing and lending data regularly provides confusing signals
that prevent proper judgments being made about what is actually taking place with trading. The confusion
creates mistrust, and markets simply cannot function without investor confidence in the market system
itself.
The difficulties in being able to accurately monitor what is occurring within the securities lending industry
and being able to gauge what the impact of securities lending is having on the market represent key issues
for an industry besieged by integrity issues.
Certainly, the off-market management of short positions and the unwinding of short positions through
off-market adjustments is diametrically opposed to the notion of free and fair markets and is contradictory
to the regulators own guidance..

Excerpt from the ASIC Website <LINK>
RG 196.85 - The Government has described positional reporting as providing an indication of the bearish
sentiment within a particular stock at any point in time and also the amount of overhang in the stock that
will need to be covered at some point by short sellers purchasing shares. In addition, for investors, this
information may provide an indication of the level of risk involved in shorting the stock. For example, it may
be risky for an investor to take a short position in a particular stock if a significant proportion of that stock
has already been shorted. This is because there is a greater chance of being subject to a short squeeze if
market sentiment changes and the investor is required to close out its position quickly.

The reality of day to day trading in the case of Lynas is that short squeezes rarely eventuate because of off-
market intervention. Short sellers purchase shares as suggested by ASIC but they have omitted to inform
investors that more often than not large purchases are done off-market. Off-market adjustments also have
the effect of withdrawing large blocks of liquidity away from the market. For the markets to have integrity
and if principles of fair trading are to be maintained then the liquidity associated with off-market
adjustments needs to be put through the price discovery process. In that way short covering purchases
would help to offset the downward pressure associated with short selling on-market.
The current situation provides more than ample opportunity for share price manipulation through excessive
levels of short selling and collusive dealings between fund managers whether it by the use of algorithms and
special crossings on-market or through extensive off-market dealings. Ensuring that both short selling and
short covering are both exposed to the processes of price discovery would perhaps go a long way to
restoring some respectability to the market.
27


Section 7.1.3
A REVIEW OF BILLABONG INTERNATIONAL LTD TRADING
(ASX CODE: BBG)
28

7.1.3.1 BILLABONG SHARE PRICE TRENDS VERSUS LEVELS OF SHORT SELLING : Period Jun 16, 2010 to Dec 31, 2012
Billabong International Ltd is a stock that has been under pressure for most of the 30 month period
reviewed. The charts cover trading from when the reporting of open short positions by ASIC commenced on
June 16, 2010 and extend to the end of December 2012. The relationship between the levels of shorting and
the share price are clearly evident with dramatic declines in the share price accompanied by high volume
trading and usually precipitated by negative news regarding the financial performance of the Company.
BILLABONG (ASX Code: BBG)

















0
5
10
15
20
25
30
35
40
45
50
M
i
l
l
i
o
n
s


Share Price
$10.0


$8.00



$6.00



$4.00



$2.00
Open Shorts
50 mill

40 mill

30 mill

20 mill

10 mill

Massive short
covering without
impacting the
share price
10


Jun 16
3 Year Share Price
Decline of 92%

13
Flat share price
while the covering
of shorts occurred
Earnings Advice
Profit Downgrade
Financial Report
Jun 30, 2011
Fund
Raising
1
2
1
st
TPG BID: $3.00
2nd TPG BID: $1.45

Further
reduction
Similar to the Lynas situation, the three key elements of trading in Billabong International have also been:
The steadily increasing open short position over an extended period of time;
Continuous declines in the share price over the same period with the share price severely reduced in value;
The removal of a large short position without impact to the share price, and;
Large volumes of back & forth trading churn not necessarily resulting in changes to ownership.

Share Price Comparisons
Jul 9, 2007 $17.90
Apr 16, 2010 $11.92
Dec 31, 2012 $0.83

Long Term (5.5 year)
Share Price Decline of 95%
29

7.1.3.2 BACKGROUND IN RELATION TO BILLABONG TRADING:
The fortunes of the Company turned down in April 2010, well before the commencement of the previous
chart (i.e. June 16, 2010). The share price has actually reduced from around the $18 (Jul 2007) to its
current 95 cents. The downturn in the share price has certainly followed the downturn in Company
earnings but as revealed by the increase in open short positions, the practice of short selling has
exacerbated the situation.
While the losses of retail investors and funds under management are evident and extensively reported on,
not so obvious is where the profits have ended up. The short selling that has taken place has effectively
stripped paper wealth from passive investors willing to lend their shares, and transferred it to real profits
for those entities doing all of the short selling. The one issue that defies logic in all that has occurred is that
the cash returns for lending shares would be miniscule in terms of the profits accrued by short sellers.
The lending of shares for the most part is done by sophisticated fund managers with wide access to pooled
funds and access to quality information. The pooled funds might represent a combination of investors such
as retail clients, the superannuation contributions of workers throughout Australia and around the globe,
private firms, government municipalities, corporate investors, other managed funds etc, all of whom rely
on professional fund managers to increase the value of their investments. Yet the shares are lent to
interests who are determind to force prices lower, and those interests also happen to be sophisticated
fund managers with acess to the same quality information.
For the system to work in the way that it has it would seem that some fund managers need to be prepared
to sacrifice their client holdings for the benefit of other fund managers. i.e. a group of patsies set up to
be fleeced and a group set to reap the rewards. Yet fund managers are meant to be performance driven
and are required to meet benchmarks. Logically the situation doesnt make a lot of sense however the
conundrum is easily explained in terms of collusion, deliberate share price manipulation and the corporate
targeting of a company. The one certainty in all of the above is that it is genuine shareholders who have
borne the losses along with the Company. The collateral damage done to the market system itself through
a loss of confidence in the integrity of trading should not be under estimated as well.
Problems for Billabong were brought to a head with an earnings downgrade released on Dec 19, 2011 that
triggered a 44% slump in the share price. The sell off was largely irrational with the share price becoming
severely undervalued and with the churn trading of sophisticated investors elevating the mayhem. On Dec
19, 25 million shares traded and another 43 million were traded the next day. The changes of ownership
that took place were nothing like that suggested by the panic and the volumes traded drawing parallels to
the trading in CuDeco on Aug 18, 2010 upon the release of a confusing resource estimate.
The take down in the share price was followed up on Feb 20, 2012 with a bid by the Company by TPG
Group pitched at $3.00 per share.
ABOUT TPG <FROM WIKIPEDIA>
TPG Capital (formerly Texas Pacific Group) is one of the largest private equity investment firms globally,
focused on leveraged buyout, growth capital and leveraged recapitalization investments in distressed
companies and turnaround situations. TPG also manages investment funds specializing in growth capital,
venture capital, public equity, and debt investments. The firm invests in a broad range of industries
including consumer/retail, media and telecommunications, industrials, technology, travel/leisure and
health care.
30

<FROM THE COMPANY WEB SITE>
TPG is a leading global private investment firm with $54.5 billion of capital under management. Founded in
1992, TPG specializes in recognizing value or the potential for value where others do not. Our contrarian
philosophy, global reach, and deep investment and operational expertise set TPG apart from other firms.
Our complementary asset classes offer a unique investment platform. We are problem solvers, partners and
pioneers. TPG's approach to investing helps us recognize value or the potential for value where others
cannot see it. This contrarian philosophy has delivered consistent and outstanding performance because we
dedicate the right mix of capital, time, and management and operational expertise to make successful
investments out of challenging situations. From steady-state buyouts to turnarounds to "off the beaten
path" opportunities, we bring deep investment skills, experience, operational and management expertise.
Our investments span a range of industries including financial services, travel and entertainment,
technology, industrials, retail, consumer products, media and communications, and healthcare. TPG has an
extensive global network and long-standing, on-the-ground presence in critical markets.


The share price was trading at $1.84 just prior to the bid from TPG. The Board and major shareholders
rejected the bid even after it was increased to $3.30. The share price then retreated to 95 cents on June 20,
2012 following the announcement of a substantial capital raising at $1.02 per share to raise $225 million.
On July 24, 2012, a revised bid of $1.45 per share was received from TPG and they were granted
confidential access to the Billabongs financial information so that they could do their due diligence and to
prepare the way for the bid to be able to go unconditional. The revised bid was followed up by a
substantial shareholder notice by TPG advising that they had negotiated with Colonial First State Asset
Management and Perennial Management Value Limited for the rights to purchase their shares at $1.45
giving TPG control over 14.51% of the register.
On September 6 a second bid was put forward by an undisclosed consortium that was also pitched at $1.45
per share. They too were granted access to the Companys financial information to do Due Diligence.
However, on Sep 20 the bid by the second consortium was withdrawn leaving just TPG as the only bidder.
On Oct 4, 2012 the Company went public to refute a media report that TPG were going to withdraw from
their offer for the Company however on Oct 12 it was anounced that TPG had in fact officially withdrawn.
On the same day TPG cancelled their agreement to purchase 14.51% of the Company leaving the market
eminently disappointed and confused.
The share price traded down to 74 cents before another bid for the Company arrived on Dec 14, 2012. It
was from a group that has been referred to as the Sycamore Consortium and was pitched at $1.10 per
share. The Sycamore bid was matched by yet another offer at $1.10 per share on Jan 14, 2013 from a
group referred to as the Altamont/VF consortium. Both groups have been allowed to Due Diligence with a
decision expected around the end of February.
The Billabong saga has the earmarks of a highly organized corporate play with the trading taking place
likely to be designed to set the preconditions for a successful bid. The anomalies in trading data can
therefore provide some insights into how the corporate targeting of the Company might have taken place
and whether the market has been fair and acting with integrity throughout the 3 long years of downtrend.
Very significantly, during the extended share price slump, the share price was forced to give up 85% of its
value before a suitor first came knocking on the door seeking to take control, and it has lost 92% of its
value now that the latest party of door knockers are completing their due diligence.
31

7.1.3.3 DATA COINCIDING WITH THE REDUCTION OF OPEN SHORT POSITIONS
Re. Jul 20 to Aug 9, 2012 Trading
During the period Jul 20, 2012 to Aug 8, 2012 a reduction of around 35 million shares in open short
positions was accomplished in 15 days of trading. The data for short cover estimates below reveals that
only 3 days of trading has been associated with reductions that could have been achievable solely by on-
market buying. The majority of days (which are shown shaded) suggest off-market activity also being
extensively involved in the covering of short positions. Again data shaded pink represents negative short
covering data or data that is in excessive of daily ASX buying, while data shaded yellow refers to short
covering levels that represent an unreasonable portion of ASX daily trading devoted to short covering.
Jul/Aug
2012
Total ASX
Sales
ASX Short
Sales
Shorts %
ASIC Open
Positions
Change to Open
Short Positions

Estimated
Short Covers
Covers as a % of
ASX Volumes
Jul 20 8,772,500 2,335,212 26.6% 43,644,149 1,886,161 449,051 5.1%
Jul 23 2,423,900 971,313 40.1% 40,146,006 -3,498,143 4,469,456 184.4%
Jul 24 45,605,200 3,513,718 7.7% 38,109,669 -2,036,337 5,550,055 12.2%
Jul 25 13,938,200 862,645 6.2% 27,705,347 -10,404,322 11,266,967 80.8%
Jul 26 10,431,000 590,537 5.7% 25,295,075 -2,410,272 3,000,809 28.8%
Jul 27 16,057,900 298,145 1.9% 17,195,643 -8,099,432 8,397,577 52.3%
Jul 30 8,787,100 262,481 3.0% 19,773,632 2,577,989 -2,315,508 -26.4%
Jul 31 2,648,800 18,198 0.7% 13,411,349 -6,362,283 6,380,481 240.9%
Aug 1 2,465,100 41,666 1.7% 10,586,517 -2,824,832 2,866,498 116.3%
Aug 2 1,145,000 85,168 7.4% 11,613,258 1,026,741 -941,573 -82.2%
Aug 3 3,204,400 884,687 27.6% 12,703,377 1,090,119 -205,432 -6.4%
Aug 6 979,700 12,934 1.3% 13,336,408 633,031 -620,097 -63.3%
Aug 7 749,200 57,980 7.7% 9,246,797 -4,089,611 4,147,591 553.6%
Aug 8 1,562,500 116,015 7.4% 8,337,634 -909,163 1,025,178 65.6%
Aug 9 5,870,600 60,228 1.0% 8,941,369 603,735 -543,507 -9.3%





The shaded data which highlights short covering estimates not reconcilable with daily data can be used to
estimate the amount of off-market covering activity that has taken place as follows:
Negative short cover estimates directly quantify the amount of additional shorts needed to be added
off-market to make the numbers balance. For example on July 30, short sales were only 262,481
whereas shorts increased by 2,577,989 requiring an extra 2,315,508 to be added off-market.
Short cover estimates that exceed the amount of buying that actually took place also point to the need
for short positions to be added off-market. For example on Jul 23, 4,469,456 short covers are needed
to balance the daily data, yet total purchases on the ASX were only 2,423,900. An additional 2,045,566
covers are needed from off-market transfer. However that assumes that all buying was associated with
covering shorts, which is totally unrealistic. Assuming that 50% of the buying was short covering related
then it means that 3,257,505 shorts would have been covered off-market.
Short cover estimates (yellow) that represent a high percentage of ASX buying are also unrealistic as it
suggests that short covering dominates trading. It doesnt.
The off-market covering of short positions can be likened to naked short selling in that both contradict
principles of fair trading and both advantage one group of investors over another. Data trends suggest that the
selling of shares that one doesnt own into the market and then being able to recover them off-market
without an impact on price represents a form of share price manipulation involving a high degree of collusion
between participants. As previously mentioned, the practice has implications for both market integrity and
investor confidence with faith in the system being rapidly eroded.




32

The following table summarizes trading days where daily data doesnt reconcile and assumes that 50% of
the daily volumes are short covering related (in reality it is usually less) and the remainder is just normal
buying. The amount of off-market activity required to make up for shortfalls can then be quantified.
Trading days where data doesnt reconcile
50% of ASX
Volumes

OFF-Market Adjustments
Jul/Aug
2012
Total ASX
Sales
ASX Short
Sales
Change to
Open
Estimated
Short Covers

Reductions Increases
Jul-23 2,423,900 971,313 -3,498,143 4,469,456

1,211,950

3,257,506

Jul-25 13,938,200 862,645 -10,404,322 11,266,967

6,969,100

4,297,867

Jul-27 16,057,900 298,145 -8,099,432 8,397,577

8,028,950

368,627

Jul-30 8,787,100 262,481 2,577,989 -2,315,508

4,393,550


2,315,508
Jul-31 2,648,800 18,198 -6,362,283 6,380,481

1,324,400

5,056,081

Aug-01 2,465,100 41,666 -2,824,832 2,866,498

1,232,550

1,633,948

Aug-02 1,145,000 85,168 1,026,741 -941,573

572,500


941,573
Aug-03 3,204,400 884,687 1,090,119 -205,432

1,602,200


205,432
Aug-06 979,700 12,934 633,031 -620,097

489,850


620,097
Aug-07 749,200 57,980 -4,089,611 4,147,591

374,600

3,772,991

Aug-08 1,562,500 116,015 -909,163 1,025,178

781,250

243,928

Aug-09 5,870,600 60,228 603,735 -543,507

2,935,300


543,507


18,630,948 4,626,117
Assuming that official daily data is accurate, estimates suggest that around 18.6 million short positions
were reduced via off-market reductions while on other days, a total of 4.6 million short positions were
added, also from off-market dealings. The situation suggests that price discovery has been seriously
compromised as the markets natural forces of supply and demand have largely been circumvented.
7.1.3.4 OPEN SHORTS COMPARED TO STOCK LENDING & STOCK BORROWING DATA:
Further data anomalies are again encountered when comparing daily changes to open short positions with
changes to Net Borrowing and to changes with Net Lending data.
Advice from the ASX website <LINK> actually suggests that the demand for shares can be taken from the net
figures. Therefore substantial changes in short positions should be reflected by commensurate changes in
borrowing and lending data. The extent of variations shown shaded in the following table convey little
confidence in the integrity of the market and its ability to reliably inform about what is actually taking place
Re. Jul 20 to Aug 9, 2012 Trading Data
2012
Changes to
Open Positions
Gross
Borrowings
Change
Net
Borrowings
Change to Net
Borrowings
Gross
Lending
Change
Net
Lending
Change to
Net Loans
Jul 20 -3,498,143 40,397,343 -7,204,948 10,958,584 -3,252,116 59,315,517 -7,344,904 29,876,758 -3,392,072
Jul 23 -2,036,337 44,011,772 3,614,429 14,405,305 3,446,721 63,124,380 3,808,863 33,517,913 3,641,155
Jul 24 -10,404,322 43,597,670 -414,102 14,652,849 247,544 61,695,667 -1,428,713 32,750,846 -767,067
Jul 25 -2,410,272 46,873,738 3,276,068 16,973,782 2,320,933 61,088,278 -607,389 31,188,322 -1,562,524
Jul 26 -8,099,432 46,949,802 76,064 16,953,031 -20,751 63,297,609 2,209,331 33,300,838 2,112,516
Jul 27 2,577,989 50,055,992 3,106,190 17,520,057 567,026 64,944,815 1,647,206 32,408,880 -891,958
Jul 30 -6,362,283 48,606,609 -1,449,383 13,493,750 -4,026,307 66,142,766 1,197,951 31,029,907 -1,378,973
Jul 31 -2,824,832 49,785,577 1,178,968 15,868,123 2,374,373 67,268,662 1,125,896 33,351,208 2,321,301
Aug 1 1,026,741 48,195,988 -1,589,589 17,193,836 1,325,713 69,250,879 1,982,217 38,248,727 4,897,519
Aug 2 1,090,119 42,405,475 -5,790,513 11,989,323 -5,204,513 62,818,185 -6,432,694 32,402,033 -5,846,694
Aug 3 633,031 23,002,432 -19,403,043 7,496,694 -4,492,629 48,385,200 -
14,432,98
5
32,879,462 477,429
Aug 6 -4,089,611 37,318,504 14,316,072 7,496,694 0 63,140,775 14,755,57
5
33,318,965 439,503
Aug 7 -909,163 37,130,682 -187,822 7,365,845 -130,849 63,354,695 213,920 33,589,858 270,893
Aug 8 603,735 36,667,388 -463,294 7,213,994 -151,851 63,345,299 -9,396 33,891,905 302,047
Aug 9 6,870,998 38,964,236 2,296,848 7,511,394 297,400 64,474,311 1,129,012 33,021,469 -870,436

Large changes to open short positions have generally not corresponded to stock borrowing and/or stock
lending data, making the interpretation of true short exposures extremely problematical.
33

7.1.3.5.1 CHART COMPARISONS: Jul 20 to Aug 9, 2012 Trading




0
1
2
3
4
5
Jul
20
Jul
23
Jul
24
Jul
25
Jul
26
Jul
27
Jul
30
Jul
31
Aug
1
Aug
2
Aug
3
Aug
6
Aug
7
Aug
8
Aug
9
M
i
l
l
i
o
n
s



ASX Volume
Short Sales
Share Price
Open Shorts

Unusual Market
Behaviour?
On July 24, TPG
offered a second bid
for the company at
$1.45 per share.
Previously TPG had
offered $3.00 on Feb
20 which was rejected
by the board. The
shares closed at $1.10
on Jul 23.
The bid resulted in a
22 cent price increase
and a volume spike of
45.6 mill shares, of
which 3.5 mill were
short sales. Open
shorts fell by 2.04 mill
suggesting that 5.5
mill short covering
purchases were
made.
On much reduced
volumes of shares in
subsequent trading,
open shorts then
reduced by a further
30 mill shares while
the share price
remained in a 5 cent
price band, well
below the TPG bid
price.
Many of the
reductions look to
have taken place off-
market without price
impact
Trading data suggests that approx
18.6 million short positions were
covered off-market and a further
4.6 million were added
Flat share price despite the large
volume of shorts covered
7.1.3.5.2 TRADING SUMMARY: July 20 to Aug 9, 2012

2012
Open
Shorts
Change to
Shorts
ASX
Volume
Short
Sells
Closing
Price
Jul 20 43,644,149 1,886,161 8,772,500 2,335,212 $1.18
Jul 23 40,146,006 -3,498,143 2,423,900 971,313 $1.10
Jul 24 38,109,669 -2,036,337 45,605,200 3,513,718 $1.32
Jul 25 27,705,347 -10,404,322 13,938,200 862,645 $1.32
Jul 26 25,295,075 -2,410,272 10,431,000 590,537 $1.35
Jul 27 17,195,643 -8,099,432 16,057,900 298,145 $1.35
Jul 30 19,773,632 2,577,989 8,787,100 262,481 $1.37
Jul 31 13,411,349 -6,362,283 2,648,800 18,198 $1.36
Aug 1 10,586,517 -2,824,832 2,465,100 41,666 $1.37
Aug 2 11,613,258 1,026,741 1,145,000 85,168 $1.38
Aug 3 12,703,377 1,090,119 3,204,400 884,687 $1.39
Aug 6 13,336,408 633,031 979,700 12,934 $1.39
Aug 7 9,246,797 -4,089,611 749,200 57,980 $1.39
Aug 8 8,337,634 -909,163 1,562,500 116,015 $1.40
Aug 9 8,941,369 603,735 5,870,600 60,228 $1.40

TPGs second BID
announced
30
mill
34

7.1.3.6 QUESTIONS CONCERNING TRADING IN BILLABONG:
While a profit downgrade on Dec 19, 2011 caused a 44% drop in the BBG share price from $3.64 to
$2.03 and prepared the way for TPGs first bid for the company pitched at $3.00,
o Who were the active trading entities in the period Aug 26 (the release of a financial report that
caused a sharp fall in price) to Dec 19 (the release of the profit downgrade), and who borrowed
the stock that led to an increase in open short positions of 13.6 million shares just prior to Dec
19, and who lent the 13.6 million shares?
o Who were the real sellers and who were the real buyers following the downgrade on Dec 19,
or did trading comprise back and forth churn with no substantial changes to ownership?
o What factors led to such extreme undervaluations assuming the TPG $3 offer was reasonable?
Whose borrowings were responsible for increasing open shorts by 18.4 million shares from
immediately after the Dec 19, 2011 profit downgrade to just before the TPG revised offer of $1.45
arrived on Jul 24, 2012, and who lent the shares to support the open short increase? Also, who were
the active market participants during that time and who was responsible for the the short selling?
Who were the sellers who facilitated the covering of shorts after June 24 at prices well below the bid
price of $1.45? Also, who were the entities doing the short covering?
Why did the covering of 30 million shorts following July 23 have so little impact on the share price?
Were placement shares used to facilitate the short covering that took place on July 23 (11.3 million
shares covered) and Jul 27 (8.4 million shares covered)? If so, then
o Logic would suggest that some sort of collusion was taking place in supplying the shares to the
market to facilitate the covering operation by an eager buyer(s);
o Logic also points to insider in the building of the large short position in the first place, perhaps
knowing that a placement would enable covering to take place;
o The circumstance also suggest unfair trading and injurious action to the company and its
shareholders on the basis that if it wasnt for excessive levels of short selling, placements may
have taken at much higher prices and caused much less dilution of the register?
What involvement did TPG have in trading prior to formalizing a BID and if not involved what roles did
their affiliates or informal industry associates have?
While profit downgrades and failed takeover bids can provide the catalysts for strong share price reactions
the important issue that needs investigating is whether or not the trading behaviours that forced prices
lower were manipulative and in breach of fair trading guidelines. Certainly any manipulative trading ,
would have been camouflaged in the market to some extent by the perception of bad news, again
drawing parallels to CuDeco where all market action was conveniently attributed to a disappointing
resource announcement and where no audits of actual trading have been undertaken.
The key to the manipulation question is whether or not the selling was genuine with ownership actually
changing hands. The issue is highlighted in a research paper by Paul Constable <LINK>.

Put simply, manipulation results in artificial forces setting the price of securities, rather than the unfettered interplay of
supply and demand (ref Pg. 4). Also,
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 (ref Pg. 6)
Constable also makes the point
issues such as the higher standard of proof, legal and evidential problems, length of time for outcomes and juries
grappling with complex matters have meant that market manipulation has been an extremely difficult matter to
prosecute under the criminal law


Paul Constable Quotes
35

The fact that manipulation is difficult to prove and prosecute shouldnt prevent wider acknowledgement
that market manipulation on the ASX does in fact exist and is sanctioned by the system of governance in
place. It manifests in a variety of ways as has been outlined in research pertaining to CuDeco where fund
managers acting through groups of brokers and where sympathetic brokers acting in their own right can
exercise control over pricing levels through:

The extensive use of proprietary trading algorithms and which have resulted in;
o Down Tick anomalism that consistently defies statistical norms and suggests a high degree
of manipulation in forcing lower prices, and
o Dominance over the setting of prices during pre-trade and close-of-trade auctions;
The selling of shares back and forth to themselves (i.e. trading churn) with large orders distributed
amongst a large number of brokers thus camouflaging the activity;
The re-balancing of holdings without price discovery through extensive off-market transfers and
through trades executed in dark pool venues;
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 where price discovery is avoided. 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;
Panicking investors by using large buy bids to support the price and then suddenly selling into them
to give the appearance of price weakness but where the buying and selling has been between
related entities;
Capitalizing on trading volatility by engineering price falls in trading between themselves (e.g. Aug
18, 2010) and thereby triggering the margin limits of exposed investors and creating irrational panic
amongst retail investors thereby leading to accelerated price falls;
Camouflaging extensive levels of wash trades by putting many of the trades through brokers with
large numbers of retail clients;
Taking advantage of a settlement system where the brokers used for high volume institutional
wash trades are not identified on the register, thus further camouflaging their 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.

If the trading in Billabong specifically involved entities swapping shares back and forth between themselves
while taking prices lower, and in doing so setting up the conditions where panic would force further
irrational price adjustments, then there is no doubt that the market has been compromised. Such trading
behaviours would generally result in holdings remaining relatively unchanged despite the frenzied trading
taking place.
From a regulatory point of view, the situation would be easy to check by establishing who the active
traders were and then observing the impact to the register associated with their trading. The CuDeco
research at least paves the way for such analysis.
Also of assistance with Billabong, even without access to the register is a comparison of the Top 20
register listing from the 20011 annual report (i.e. before the Dec 20 profit downgrade) with the patterns of
trading that took place throughout 2011 leading up to the profit down grade and immediately afterwards
as logged by substantial shareholder notices. However the of impact active trading by entities with
holdings less than 5% remains an unknown.

The following sections assess the trading of entities who have lodged substantial shareholder notices in relation
to their Billabong holdings and looks at the intricacies of the trading involved. The details provided can be
verified from the ASX website using BBG for Billabongs code. <LINK>

36

7.1.3.7 BILLABONG SUBSTANTIAL SHAREHOLDER DISCLOSURES: January 2011 to March 2012
The following table brings to notice the activities of trading entities who have become substantial
shareholders during the period early January 2011 to late March 2012 and includes trading surrounding
the profit downgrade and the two separate takeover offers from TPG.

Date Announcement Link Percentage Shares Change
13/01/2011 Becoming a substantial holder - Fidelity PDF 5.2% 13,136,301

17/01/2011 Becoming a substantial holder - Franklin Resources PDF 5.0% 12,679,517

28/02/2011 Ceasing to be a substantial holder from NAB PDF 4.0% 10,112,434 -3,045,503
28/02/2011 Change in substantial holding - Fidelity PDF 6.3% 15,840,409 14,504,108
1/03/2011 Ceasing to be a substantial holder - Invesco PDF 3.9% 9,830,719 -3,518,009
4/04/2011 Becoming a substantial holder from NAB PDF 5.1% 12,858,489 2,746,055
6/04/2011 Becoming a substantial holder - Invesco PDF 5.1% 12,949,033 3,118,314
9/05/2011 Change in substantial holding from NAB PDF 6.4% 16,131,425 3,272,936
8/06/2011 Ceasing to be a substantial holder - Invesco PDF 4.9% 12,442,179 506,854
16/06/2011 Becoming a substantial holder - Invesco PDF 5.0% 12,742,665 300,486
24/08/2011 Change in substantial holding - Fidelity PDF 5.1% 12,880,139 -2,960,270
25/08/2011 Ceasing to be a substantial holder - Fidelity PDF 4.6% 11,723,946 -1,156,193
30/08/2011 Change in substantial holding - Invesco PDF 6.2% 15,741,240 2,998,575
2/09/2011 Ceasing to be a substantial holder - Invesco PDF 5.0% 12,543,640 -3,197,600
9/09/2011 Becoming a substantial holder - Invesco PDF 5.6% 14,231,976 1,688,336
14/09/2011 Change in substantial holding from NAB PDF 7.4% 18,716,418 2,584,993
6/10/2011 Change in substantial holding - Franklin PDF 6.1% 15,475,785 2,796,268
14/10/2011 Change in substantial holding from NAB PDF 9.0% 22,944,261 4,227,843
27/10/2011 Becoming a substantial holder - Baillie Guildford & Co PDF 5.1% 12,956,165 ?
1/11/2011 Becoming a substantial holder - UBS PDF 5.2% 13,336,752 ?
7/11/2011 Ceasing to be a substantial holder - UBS PDF <5% 6,800,000 ?
8/11/2011 Change in substantial holding - Baillie Guildford & Co PDF 6.1% 15,605,230 2,649,065
15/11/2011 Change in substantial holding from CBA PDF 6.3% 16,180,622 -2,984,587
28/11/2011 Notice of initial substantial holder from IFL PDF 5.0% 12,785,163

30/11/2011 Ceasing to be a substantial holder - Invesco PDF 5.0% 12,561,444 -1,670,532
30/11/2011 Change in substantial holding - Franklin Resources PDF 7.2% 18,378,156 2,902,371
8/12/2011 Becoming a substantial holder - UBS PDF 7.4% 18,980,134 ?
13/12/2011 Ceasing to be a substantial holder - UBS PDF <5% ? ?
19/12/2011 Trading Update - Profit Guidance PDF Expected EBITDA down 35%
21/12/2011 Change in substantial holding from IFL PDF 6.2% 15,862,450 3,077,287
23/12/2011 Change in substantial holding from IFL PDF 9.0% 22,978,317 7,115,867
23/12/2011 Change in substantial holding from NAB PDF 10.2% 26,184,611 3,240,350
28/12/2011 Ceasing to be a substantial holder from CBA PDF 4.2% 10,667,028 -5,513,594
28/12/2011 Ceasing to be a substantial holder - Maple, Brown, Abbot PDF <5% ? -6,256,976
30/12/2011 Change in substantial holding from NAB PDF 8.9% 22,755,711 -3,428,900
4/01/2012 Change in substantial holding from NAB PDF 7.2% 18,446,977 -4,308,734
20/01/2012 Change in substantial holding from NAB PDF 8. 3% 21,167,420 2,720,443
30/01/2012 Becoming a substantial holder from CBA PDF 5.1% 12,909,664 2242346
3/02/2012 Change in substantial holding from NAB PDF 7.0% 17,933,373 -3,234,047
9/02/2012 Change in substantial holding from NAB PDF 8.2% 20,998,683 3,065,310
15/02/2012 Notice of change of interests of substantial holder from IFL PDF 11.4% 28,978,588 2,937,127
16/02/2012 Change in substantial holding from NAB PDF 6.9% 17,649,012 -3,349,671
20/02/2012 Becoming a substantial holder - Credit Suisse PDF 5.0% 12,852,218 ?
20/02/2012 Notice of change of interests of substantial holder from IFL PDF 10.0% 25,542,084 -3,436,504
20/02/2012 Non-binding indicative Proposal received from TPG PDF Offer at $3.00 per share
23/02/2012 Change in substantial holding from CBA PDF 8.5% 21,557,645 8,647,981
23/02/2012 Change in substantial holding from NAB PDF 5.4% 13,698,846 -3,950,166
27/02/2012 Update on TPG Proposal PDF Offer not accepted
28/02/2012 Ceasing to be a substantial holder from NAB PDF 4.8% 12,312,616 -1,386,230
28/02/2012 Update on TPG Proposal PDF Revised offer of $3.30 rejected
26/03/2012 Ceasing to be a substantial holder - Credit Suisse PDF <5% ? ?

Mainly due
to stock
lending
share flows
Mainly
due to
stock
lending
Sales plus
returns of
borrowed
stock
Due to sales
plus returns
of borrowed
stock
Accumulation
by managed
funds
37

The prominent trading entities who have regularly attained substantial shareholder status have been NAB,
CBA, IFL, UBS and INVESCO. Entities whose disclosures to the market point to an involvement with short
selling and stock lending include UBS, NAB, Credit Suisse, and CBA.
Importantly, the vast majority of dealings are associated with active traders whose holdings dont breach
the 5% substantial shareholder status go unreported and virtually unnoticed.
The extent of trading churn in the market is exemplified by a total of 434.4 million shares trading through
the period covering the profit downgrade on Dec 19, 2011 up until Feb 20 2012 just prior to the TPG BID
arrived. Much of it was non genuine in the sense that shares simply washed back and forth between the
major institutional traders.
Substantial holder disclosures for the same period reveal 24.4 million net gains in holdings and 29.5 million
net falls. However the substantial notices also include movements of borrowed shares, not just buys and
sells. And the movements associated with stock lending can be quite substantial as shown in Section
7.1.3.8.1.8.1 with Credit Suisse, Sect 7.1.3.10.7 with UBS and Sect 7.1.3.8.1.5.3 with NAB. After adjusting
for stock lending, substantial notices dont go very far in accounting for the 434.4 million trades put
through the market. It leaves a vast amount of back and forth trading churn with no significant changes to
ownership that has avoided scrutiny.
In assessing the share movements of substantial shareholders it needs to be understood how the rightful
owner of a parcel shares may not be the registered holder of the shares and in any case another entity may
have acquired the voting rights and/or the power to dispose of the shares through 3rd party securities
lending agreements. In such instances often a custodian is used as the registered holder.
However the obfuscation associated with intricate webs of holdings by various substantial holders and for
that matter non substantial holdings, all being held by custodians is a serious problem for the industry
where dark dealings could easily be camouflaged.
The following table lists the registered holder of securities for some of Billabongs substantial holders.
Substantial holdings usually come about because fund management groups have rights to control the
holdings of affiliates within a particular group.
Shareholder Group Registered Holders of Securities
Franklin Resources Citibank Melbourne, HSBC Bank Australia, JP Morgan Chase, National Australia Bank
Fidelity FMR LLC & FLL
Macquarie
Macquarie Bank Ltd, Goldman Sachs International, Merrill Lynch Prime Brokerage,
Morgan Stanley, Goldman Sachs International, Bond Street Custodians, HSBC Australia
National Bank
UBS Nominees, National, Cogent Nominees, Navigator Australia Ltd, RBC Global
Services
Baillie Gifford & Co HSBC Nominees, JP Morgan Nominees, National Nominees,
Credit Suisse 6 Different Credit Suisse Holdings
UBS 7 Different UBS Entities
Commonwealth Bank
Citicorp Nominees, Avanteous Investments, Share Direct Nominees, HSBC UK, National
Nominees
IOOF
Northern Trust, NAB Asset Servicing, JP Morgan, JB Were, Citigroup, BNP, NAB Asset
Servicing
Colonial First State
CFS Imputation Fund, CFS Wholesale Imputation Fund, CFS, Global Asset Management,
CFS Wholesale Leaders Fund
Perennial Value Management NAB Asset Servicing, BNP, Citigroup, JP Morgan, JB Were



Fund managers are seen to have a great deal of flexibility in allocating trades across their affiliates. They
could be a buyer for one and a seller for another even if using multiple brokers to execute the orders in the
market . In essence, their trading may not be much different than a retail trader attempting to influence the
market by say stacking the sell but with a buy bid in place in an attempt to accumulate shares, a situation
that would no doubt meet with the disapproval of regulators, if noticed, as it is manipulative.

38

7.1.3.8.1 A REVIEW OF SUBSTANTIAL SHAREHOLDERS IN BILLABONG (BBG) Fidelity Group (Pooled Fund)
The following is part of the initial substantial shareholder notice declared by FMR LLL and FIL Limited early
2011 where they had accumulated 13.1 million shares. The group is also known as Fidelity Investments,
who are one of the worlds largest mutual fund companies. It is also the leading provider of workplace
savings plans in the U.S., and the countrys No. 1 provider of Individual Retirement Accounts (IRAs). Fidelity
offers retirement planning, portfolio guidance, brokerage services and many other financial products and
services to more than 20 million individuals and institutions, as well as more than 5,000 financial
intermediary firms.<LINK>
The substantial shareholder notice demonstrates how an investment powerhouse such as Fidelity can
harness considerable buying power through its broad network of clients to amass large stakes in public
companies. The right to dispose of such holdings and the right to make shares available for stock lending
purposes then provides fund managers with a great deal of influence in the market. The nature of the
holdings reflects a strong but passive involvement by both small investors and sophisticated investors in the
funds being managed.
Information in the disclosure notice suggests that the average price of the 13.1 million shares purchased by
Fidelity was around $8.50. The current price is around $0.95. The very substantial fall in the share price,
facilitated by short selling by fund managers with access to a wide range of funds under management, has
translated into massive losses for their clients. Clients who no doubt were expecting income from their
stock being managed by market professionals.
However the massive losses of those clients whose funds have been under management and whose shares
have been lent out to be short sold into the market represent massive gains by those who have positioned
themselves to benefit from short selling. On the other hand, the identities of those profiting from extensive
short selling activity are likely to be amongst the same group of sophisticated investors with access to Dark
Pools and HFT trading programs which are at the heart of stock market manipulation concerns.
7.1.3.8.1.1 FMR LLL and FIL Limited Registered Holders: Jan 11, 20011


39




40























The holders of relevant interests such as the above represent the types of investors whose holdings
support stock lending programs and irrespective of whether they have lent their shares or not, all have
suffered major capital losses because of the collapse in the share price. Usually clients are able to
nominate the level of risk they are prepared to accept with their managed investment, with the more
aggressive selections creating exposure to securities lending.
Lists of pooled funds such as the one by Fidelity also demonstrate the global connectedness of companies
as per Research Paper 6.5.1.2 with exposure to Billabong reaching far and wide.


41

7.1.3.8.1.2 FRANKLIN RESOURCES: Substantial Notice in BBG dated Jan 13, 2011 (Pooled Fund)

The disclosure by Franklin is particularly helpful in understanding how the securities lending system is
structured where owners of shares sign over guardianship/management rights and the holdings are then
held by custodians (who are usually one or more of leading investment banks). In signing over
management rights, presumably some or all of the Franklin holders give permission to engage in stock
lending.

In return for making their shares available to be borrowed by 3
rd
parties, Franklin clients receive income
which is taken from the fees charged to borrowers when client shares are lent out.

About Franklin Resources
Franklin Resources is an American holding company which, together with its subsidiaries, is referred to as Franklin
Templeton Investments who managed over $570 billion in total assets worldwide back in 2008. In 2004, Franklin
Templeton paid fines to the State of California, the Commonwealth of Massachusetts, and the U.S. Securities and
Exchange Commission to settle issues regarding questionable practices including market timing. <LINK>

Persons Entitled to be
Registered as Holder
Shares Registered Holders Shares
T Global Smaller Co Fund 701,625 Citibank Melbourne 48,295
T Foreign Fund 5,265,280 HSBC Bank Australia 3,311,537
FTIF - T G Smaller Cos Fund 601,150 JP Morgan Chase 7,702,559
Temp Int Smaller Co Fund 333,309 National Australia Bank 1,617,126
TEM MPF - Asian Balance FD 39,857

FTIT T Fgn Smal Co Fund 441,229


Temp MPF AP Equity Fund 8,438

TGIT- Templeton Income F 907,880


Temp Global Income Fund 28,879

TIF - Foreign Smaller C 359,966

LA City Employees Ret 150,245

JHancock Tr Int Value Tr 677,323

JHancock Funds ll-Intl Va 835,209

JHancock Funds ll-Intl Sm 714,567

VALIC Company i-Foreign V 871,720

SA Templeton Foreign Fund 62,473

Treasurer of State NC 409,625

T Cnty E&O A&B F Of Cook 188,942

AEP Ret Plan Intl Sm Cap 81,800

Totals 12,679,517

12,679,517




7.1.3.8.1.3 MACQUARIE GROUP LIMITED: Substantial Notice in BBG dated July 5, 2011

The substantial holder notice came about through rights to exercise control over 23,857,728 shares which
represented 5.8% of the Billabong register at the time.

Control over shares






Institutions with
custodial rights over
the shares held by
Franklin Resources
affiliates
Billabong share
holders, comprising
a series of pooled
funds affiliated and
managed by Franklin
Resources

42

Registered holders

















The Macquarie substantial shareholder notice again draws attention to the distinctions between:
The actual holder or legal owner of shares (which is not declared as each account looks to be a
pooled fund representing multiple clients);
The entity with rights to make decisions about the holdings in relation to buying, selling, and even
lending, which is Macquarie Groups prerogative as fund manager, and;
The registered holder of the shares which is with a series of investment banks and custodians.

Pooled funds are seen to provide both anonymity for the owners of shares and the flexibility for fund
managers to be able to distribute trades. The distribution of trades is difficult to trace as they are
aggregated with only the net changes occurring in the holding of a custodian.

Again the notice serves to demonstrate how - large volumes of buying and selling distributed through
multiple brokers and executed in small parcels via algorithms for affiliates within the same group, and if
necessary, through dark pools to address any imbalances in holdings, and where the trading overall results
in only minor changes to group ownership, - could easily lead to an unfair market and control over prices.


7.1.3.8.1.4 INVESCO: Substantial Notice in BBG dated June 16, 2011

Invesco was an active buyer and seller during the period Jan 2011 to Sep 2011 with two Initial Substantial
Shareholder Notices and two Ceasing to be a Substantial Shareholder notices. All notices contain scant
details about their actual trading in contrast to the likes of Macquarie, UBS and say Credit Suisse who
provide comprehensive listings of their activities. In the June 16 notice Invesco declared a holding of
12,742,665 shares representing 5.02% of the Billabong register. The holding is simply registered in the
name Invesco Australia Ltd and presumably represents a number of smaller client holdings.

About Invesco
Invesco Ltd. is an independent investment management company that is incorporated in Bermuda,
headquartered in Atlanta, Georgia, United States, and has branch offices in 20 countries including
Australia. They claim to be one of the world's leading specialised, global fund managers with funds under
management of $632 Billion at the end of June 2012. Invesco claims to be focused on delivering strong
investment returns for clients. <LINK>
Shares
43

7.1.3.8.1.5.1 NATIONAL AUSTRALIA BANK & ASSOCIATES:
Fluctuations in the holdings of National Bank as a substantial holder in Billabong have been a regular
feature of trading over the last few years. It has also been involved with securities lending as per the
following summaries of lending activity undertaken on behalf of client holdings under management.
National Bank is the lender on behalf of its clients, and the listed counterparties are the borrowers of
shares. All parties are governed by a standard Australian Master Securities Lending Agreement (AMSLA).
The ASX describes a lending agreement as follows:
A securities lending arrangement is an arrangement under which a holder of securities agrees to provide its
securities to a borrower for a specified period of time, with an associated agreement by the borrower to
return equivalent securities at the end of an agreed period. Loans are typically executed under standardised
agreements, which give the borrower full title for the term of the loan. Under such agreements, the lender
typically charges a fee for the loan and requires that the borrower post collateral. The lender also typically
reserves the right to recall the securities with a specified period of notice prior to the end of the loan period
(typically based on the standard settlement period in the market - three days in Australia). <LINK>


28 Sep 2011 to 11 Oct 2011 30 Dec 2011, to 17 Jan 2012 01 Feb 2012 to 6 Feb 2012
Securities Borrowing Agreement
Clients
Securities Borrowing Agreement
Clients
Securities Borrowing
Agreement Clients

AVSUPER PTY LTD AVSUPER PTY LTD UNISUPER LIMITED
CARE SUPER PTY LTD CARE SUPER PTY LTD VICSUPER PTY LTD
GOVERNMENT EMPLOYEES SUPER GOVERNMENT EMPLOYEES SUPER
MOTOR TRADES AUSTRALIA SUPER MOTOR TRADES AUSTRALIA SUPER
SUNSUPER PTY LTD SUNSUPER PTY LTD
TELSTRA SUPER PTY LTD UNISUPER LIMITED
UNISUPER LIMITED VICSUPER PTY LTD
UNITED SUPER PTY LTD

AMSLA Counterparties AMSLA Counterparties AMSLA Counterparties

Deutsche Securities Australia Ltd Deutsche Securities Australia Ltd Macquarie Bank Ltd
Credit Suisse Credit Suisse UBS Securities Australia
Instinet Australia Pty Ltd Macquarie Bank Ltd
JP Morgan Securities Australia Merrill Lynch Equities Australia

Macquarie Bank Ltd Morgan Stanley & Co International
Merrill Lynch Equities Australia UBS Securities Australia
Morgan Stanley & Co International
EQ

Judging from the lending activity undertaken by NAB, it appears that a good deal of Australian
superannuation monies have been caught up with in the demise of Billabong and that their stock has also
been used to facilitate the short selling that has contributed to downward pressure on the share price.
NAB Securities Lending Details
44

7.1.3.8.1.5.2 CONTROL OVER SHARES: NAB Substantial Notice in BBG dated June 16, 2011
The National Bank notice also highlights the complexity associated with substantial holdings where the
rightful owner of the shares has bestowed control over the holding through management and guardianship
agreements and where the registration of the holding usually sits with the custodian.
The substantial holder is generally given authority to control voting rights, to enter into securities lending
arrangements and to dispose of the securities as seen fit.
Substantial holdings are not only impacted by buying & selling by affiliates but also by involvement with
securities lending agreements which introduce share flows to and from affiliate accounts. Importantly,
when shares are borrowed, full title to the shares is transferred to the borrower while in return the lender
receives collateral to secure the agreement. In the case of affiliates of the substantial holder becoming
involved with the borrowing of shares:
The borrowed shares are registered in the name of the affiliate and so increase the number of shares in
the substantial holding.
Borrowed shares that are returned to the lender reduce the substantial holding.
In the case of an affiliate becoming involved with the lending of shares:
Shares lent out by the affiliate would reduce the holding as those shares are transferred out of the
holding to the borrower.
Loaned shares that are returned by the borrower to the affiliate would increase the substantial holding.
The holdings of National Bank and its Associated entities for the Oct 14, 2011 substantial shareholder
notice were as follows with the account that look to be associated with securities lending shown shaded.
NAB & Affiliates Registered Holder Shares
MLC Investments National Nominees 15,316,425
MLC Limited National Nominees, Navigator Australia Ltd 328,180
National Australia Bank Ltd Cogent Nominees 4524
National Australia Bank Ltd National Nominees 6,414,167
MLC Wealth Management Ltd Navigator Australia Ltd 290,958
National Australia Bank Ltd UBS Nominees 23,132
Aviva Australia JP Morgan, National & HSBC Nominees 571,399

Total 22,944,261

7.1.3.8.1.5.3 SECURITIES LENDING SHARE FLOWS COMPARED TO BUYING & SELLING
The extent of securities lending share flows associated with the NAB Group is very substantial as the
following summary of trading over the years 2010, 2011 and 2012 reveals. The data has been taken from
the Change in relevant interests disclosures from NAB substantial shareholder notices with one account
reflecting share flows from securities lending, (shown shaded) and the remainder reflecting changes due to
buying and selling.
NAB GROUP ENTITIES OFF 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
NabInvest 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%
There has been an extraordinary
imbalance between the volumes of
share flows associated with
securities lending compared to the
buying & selling of all other affiliates
Share flows from Buying & Selling
Share flows from Securities Lending
45

The large share flows from NAB securities lending alone represents an enormous influence in the market
that has been put in place in an attempt to force lower prices. Such disproportionate volumes with entities
looking not only to profit from shorting activities but also to protect exposed positions as well, means that
vested interests have had powerful incentives to manage prices with their trading. Through weight of
numbers, such pressure may well have compromised the price discovery process, and contributed to any
share price undervaluations.
A summary of NAB Group substantial shareholder notices and the accompanying securities lending activity
is provided in the tables.

Details of Substantial Holder Notices showing
total shares controlled by the Group

Trading details of National Australia Bank Ltd, the
entity engaged in securities lending
DATE TYPE HOLDING SHARES NAB Ltd Per cent OFF ON NET
Feb 2, 2010 Initial 5.19% 13,125,139 5,555,152 42.3% 30,763,554 29,990,728 -772,826
Feb 4, 2010 Ceasing 4.78% 12,095,905 4,520,918 37.4% 1,193,234 159,000 -1,034,234
Oct 22, 2010 Initial 5.25% 13,292,040 3,498,996 26.3% 43,936,764 42,914,842 -1,021,922
Oct 27, 2010 Ceasing 4.10% 10,353,221 485,000 4.7% 3,063,996 50,000 -3,013,996
Nov 22, 2010 Initial 5.02% 12,725,130 2,453,138 19.3% 2,295,613 4,263,751 1,968,138
Nov 25, 2011 Ceasing 4.91% 12,445,649 2,145,005 17.2% 338,133 30,000 -308,133
Dec 1, 2010 Initial 5.19% 13,157,937 2,870,116 21.8% 155,154 880,265 725,111
Feb 28, 2011 Ceasing 4.42% 11,219,878 354,708 3.2% 8,839,336 6,323,928 -2,515,408
Apr 4, 2011 Initial 5.07% 12,858,489 1,996,742 15.5% 1,412,976 3,055,010 1,642,034
May 5, 2011 Increase 6.35% 16,131,425 4,651,993 28.8% 4,908,866 7,564,117 2,655,251
Sept 14, 2011 Increase 7.40% 18,786,418 2,610,414 13.9% 43,566,599 41,525,020 -2,041,579
Oct 14, 2011 Increase 8.99% 22,944,261 6,414,167 28.0% 6,802,536 10,606,289 3,803,753
Dec 23, 2011 Increase 10.26% 26,184,611 10,109,056 38.6% 31,858,945 35,553,834 3,694,889
Dec 30 2011 Decrease 8.92% 22,755,711 9,078,056 39.9% 1,080,000 49,000 -1,031,000
Jan 4, 2012 Decrease 7.23% 18,446,977 6,359,285 34.5% 2,953,771 235,000 -2,718,771
Jan 20, 2012 Increase 8.30% 21,167,420 9,141,790 43.2% 1,793,491 4,575,996 2,782,505
Feb 3, 2012 Decrease 7.03% 17,933,373 5,945,416 33.2% 4,486,374 1,290,000 -3,196,374
Feb 9, 2012 Increase 8.23% 20,998,683 9,010,381 42.9% - 3,064,965 3,064,965
Feb 16, 2012 Decrease 6.92% 17,649,012 7,341,058 41.6% 2,187,323 518,000 -1,669,323
Feb 23, 2012 Decrease 5.37% 13,698,846 6,630,093 48.4% 3,224,965 2,514,000 -710,965
Feb 28, 2012 Ceasing 4.83% 12,318,798 7,230,093 58.7% 3,011,000 3,611,000 600,000
TOTALS 197,872,630 198,774,745 902,115


7.1.3.8.1.5.4 CHART SHOWING NAB GROUP SECURITIES LENDING SHARE FLOWS:

0
5
10
15
20
25
30
35
40
45
50
Feb
2,
2010
Oct
22,
2010
Nov
22,
2010
Dec
1,
2010
Apr
4,
2011
Sept
14,
2011
Dec
23,
2011
Jan
4,
2012
Feb
3,
2012
Feb
16,
2012
Feb
28,
2012
M
i
l
l
i
o
n
s
Extensive activity prior to the Dec 19 profit
downgrade is indicative of trading behaviours
triggered by insider knowledge.
NAB activity didnt reach
substantial shareholder status
throughout the remainder of 2012.
Percentage of Group
Holding
46

7.1.3.8.1.6 IOOF HOLDINGS LIMITED and its SUBSIDARIES: BBG notices dated Nov 28, 2011 and Jul 3, 2012
IOOF became a substantial holder through its role as investment manager for a number of affiliated
entities (i.e. pooled funds) on Nov 28, 2011.
The table compares holdings as stated in the July 3, 2012 notice to those stated back in Nov 28, 2011. A
substantial amount of accumulation is seen to have occurred by the IOOF Group in the months following
the Dec 19, 2011 profit down grade leading up to the TPG 2
nd
bid pitched at $1.45.
Holder/ IOOF Affiliate Registered Holder
Shareholding
Nov 28, 2011
Shareholding
Jul 3, 2012
Perennial Investment Partners Ltd Northern Trust 566,544 -
Perennial Investment Partners Ltd NAB Asset Servicing 6,631,349 28,912,481
Perennial Investment Partners Ltd JP Morgan 2,495,200 7,949,486
Perennial Investment Partners Ltd JB Were 30,859
207,599
Perennial Investment Partners Ltd Citigroup 2,029,051 9.850,293
Perennial Investment Partners Ltd BNP 1,030,710 9,226,695
IOOF Investment Management Ltd NAB Asset Servicing 1,440 1,440

Total 12,785,163 46,297,701



7.1.3.8.1.7 BAILLIE GIFFORD & CO AND AFFILIATES: Substantial Notice in BBG dated Oct 27, 2011
Baille Gifford advised the market of becoming a substantial shareholder on Oct 27, 2011 with control over
a holding of 12,945,965 shares representing 5.07% of the register. The holding was established through a
series or purchases by its various affiliates. The holding in effect represents management rights to a series
of pooled funds which are listed in the disclosure statement.
About Baillie Gifford
Baillie Gifford is an investment management firm which is wholly owned by 37 partners, all of whom work full time
for the firm. It was founded in Edinburgh in 1908 and still has its headquarters in the city. Assets under management
exceed 80 billion (as at 30 September 2012). By the time of its centenary in 2008, Baillie Gifford had offices in New
York and London in addition to its headquarters in Edinburgh. Clients included five of the seven largest pension funds
in the US and the firm had also attracted significant levels of business from Japan and Australia, as well as continuing
to make inroads in other parts of the Far and Middle East. <LINK>
The holdings are once again registered with institutional Investment Bank custodians as detailed below.

Details of present registered holders


Various funds managed
by Baillie Gifford
Shares under custodial
ownership
Holder of relevant interest Registered Holder
Number of Shares
From 5.0%
to 13.7%
47

7.1.3.8.1.8.1 CREDIT SUISSE: Substantial Notice in BBG dated Feb 20, 2012
Credit Suisse disclosed a substantial holding of 12,852,218 shares (5.04%) on Feb 20, which was mainly the
result of borrowing shares presumably for short selling purposes. In the period covered by the notice,
Credit Suisse entities borrowed around 10.27 million shares but only returned 526,000 shares showing a
net gain of 9.744 million, almost enough in their own right to make them a substantial shareholder. Net
purchases of 2.58 million represented the additional shares declared. The actual transaction details are
summarized in Sect 7.1.3.11.1

The relevant interests of the Credit Suisse Group were declared as per the following schedule with the
entities involved with securities loans circled. Borrowings are shown circled in red and lending in blue.











The notice draws attention to the fact that when shares are borrowed through a securities lending agreement
such as an Australian Master Securities Lending Agreements (AMSLA), full title to the shares actually transfer
to the borrower. The borrower can do anything they choose with them but have an obligation to return them
at a future date. The lender receives cash and/or securities as collateral to protect the loan. The agreement is
terminated by the return of borrowed shares which coincides with a return of collateral.

Credit Suisse also disclosed a number of firms who have been partners in securities lending agreements.
They include:





The range of lenders again demonstrates the interconnectedness between the worlds major financial
entities as brought to attention in Research Paper 6.5.1.

State Street Bank and Trust Company,
Chase Manhattan Bank (National Assoc.),
Northern Trust Co, Citibank N.A,
Brown Brothers Harriman and Co,
Goldman Sachs Trust Co
ABN AMRO Mellon Global Securities
Sharp Peak Vega Fund
Chase Manhattan Bank (London Branch)
National Australia Bank
Chase Manhattan Bank (Sydney Branch)
Black Rock Institutional
Asia Master Fund Limited,
CQS Directional opportunities Master Fund


48

7.1.3.8.1.8.2 A HYPOTHETICAL REGARDING TRADING
The Credit Suisse disclosure with their spread of lenders can be used to hypothesize about how an entity or
entities interested in pursuing particular corporate objectives - perhaps an undervalued share price of a
targeted company - could easily use the current trading system to manipulate the market.
All that would be needed is for such a group to establish a holding in the likes of Billabong and transfer it
into one or more anonymous holdings similar to the above and to make them available for stock lending.
The recruitment of a fund manager sympathetic and perhaps like-minded with the corporate objectives
being sought could then be encouraged to aggressively trade the holding. If the manager was to use other
holdings available to him/her as well, then corporate trading agendas would be fast tracked considerably.
Such dealings could be outright manipulative with trading back and forth between affiliated accounts and
with any losses merely accepted as a cost of doing business. The business of course would relate to Big
Picture corporate objectives such as an undervalued share price, often the pre-cursor to take over activity.
Trading strategies such as the above accompanied by associates of the fund manager being prepared to
either stand aside or to even facilitate
1
the trading objectives for their own advantage, would be very
difficult to pick up under existing arrangements.
Very extensive audits would be required to untangle the web of dealings associated with scenarios such as
the above however the auditing of trading accounts is something that doesnt appear to take place in the
face of major dislocations in share prices.
Often a seemingly credible excuse such as a poor earnings outlook, a profit downgrade, a disappointing
resource estimate, negative rumours about a company, operational setbacks etc. etc. are conveniently
used to excuse trading activity that might in fact be found to be manipulative in both intent and in
execution if forensically investigated.
Perhaps a lack of resources by the regulator as per the article ASIC admits it is overstretched is taken
advantage of by interests who are intent on forcing their will over the market by whatever means available.
All the while knowing that their actions are likely to be tacitly approved or at least quietly ignored.
The limitations and/or the lack of effectiveness of the regulator are borne out by reports of a manipulative
trading spike on Oct 19, 2012 Refer link: Unusual trades spark fears of market manipulation - where ASIC
was reportedly to be concerned Refer: - Flash spike trades were possibly illegal, says ASIC. However the
upshot was to quickly clear the use of algorithms, HFT trades or any fat finger issues by an operator, of any
wrong doing and though all the trades were associated with UBS , discussions were ongoing as to the actual
cause of the problem - Refer ASIC still puzzled by mystery trades. It is now almost 4 months later without
an outcome to any investigation, yet the trading blip resulted in bonanza profits for those responsible.

It is likely that audits would very quickly establish what actually occurred, particularly as ASIC has the
power to request all trading records and to talk to the brokers responsible together with their clients. Yet
audits have not been implemented. The frustrations of investors are compounded by the fact that issues
associated with automated electronic trading were first flagged over 10 years ago and yet nothing of
consequence appears to have been implemented to guarantee the integrity of the market and to provide
effective deterrents for those prepared to abuse the system.
1
The issue of possible collusion by fund managers is more fully expanded upon in Sect 7.1.3.15.1
49

7.1.3.8.1.9 UBS AG AND ITS RELATED BODIES CORPORATE Substantial Notice in BBG dated Nov 1, 2011
Similar to the Credit Suisse situation, it was UBSs stock borrowing activities that was largely responsible
for it becoming a major shareholder on Nov 1, 2011 and again on Dec 8, 2011.
On Nov 1, 2011, UBS declared a holding of 13,336,752 shares representing 5.23% of the Billabong register.
However it was the borrowing of 7.45 million shares on Oct 27 that boosted the holding above 5% and
triggered the disclosure.
The control over shares by UBS is through its various affiliates as listed below, where the identities of
clients within these holdings are unknown to the market. The registered holder for securities within each
affiliate is also listed alongside:
UBS Securities Australia Ltd Warbont Nominees
UBS AG London Branch held by various custodians
UBS AG Australia Branch UBS Nominees
UBS AG held by various custodians
UBS Global Asset Management Life Ltd held by various custodians
UBS Global Asset Management Australia Ltd held by various custodians
UBS Securities LLC held by various custodians

UBS affiliates have entered into Securities lending agreements with the following lenders which again show
the interconnectedness of financial entities with influences stretching across the globe.


COMMONWEALTH BANK and its SUBSIDARIES: Initial Substantial Notice dated Jan 30, 2012


7.1.3.8.1.10 COMMONWEALTH BANK (CBA) and its SUBSIDIARIES: Substantial Notices Jan 30 & July 4, 2012
Commonwealth Bank became a substantial holder through its role as investment manager for a number of
affiliated entities on Jan 30, 2012. The table compares Jan 30 affiliate holdings with those for Jul 4, 2012.
CBA Affiliate Registered Holder Jan 30 Holdings Jul 4 Holdings
Arcadian Asset Management Citicorp Nominees 55,419 163,344
ASB Group Investments Citicorp Nominees
240,075
378,389
Avanteous Investments Avanteous Investments
4,459
3,529
CBA Equities Share Direct Nominees
496,863
109,267
Colonial First State Investments Ltd Acc. 1 Citibank Prime Broker
-
499,323
Colonial First State Investments Ltd Acc. 1 Citicorp Nominees
4,827,949
27,109,221
Colonial First State Investments Ltd Acc. 1 Citigroup Global Market Ltd
-
44,899
Colonial First State Investments Ltd Acc. 2 Citicorp Nominees
36,070
66,987
Colonial First State Investments Ltd Acc. 2 National Nominees
-
45,255
Colonial First State Investments Ltd Acc. 3 Citicorp Nominees
6,592,016
12,025,706
First State Investments (UK) Ltd HSBC UK
7,561
14,196
CBA Officers Super Fund Citicorp Nominees
-
953,723
Realindex Investments Ltd Citicorp Nominees
543,211
1,709,101
Realindex Investments Ltd National Nominees
106,041
403,186

Total 12,909,664 43,526,126

Citibank NA
Regal Funds Management
The Northern Trust Company
JP Morgan Chase
State Street Bank & Trust Company
National Australia Bank
Australian Leaders Fund
BT Investment Management
HSBC Bank Plc
AMP Life
Blackrock Pacific


5.06% 10.59%
CBA affiliates were major accumulators of shares in the months following the Dec 19 share price collapse

50

7.1.3.8.1.11 TPG GROUP SUBSTANTIAL SHAREHOLDER NOTICE: July 25, 2012
The TPG notice of July 25, 2012 demonstrates how very substantial buying usually takes place away from
the market where price discovery can be conveniently sidestepped. Other examples include Sandfire
Resources (SFR), Echo Entertainment Group (EGP), Lakes Oil (LKO), CuDeco (CDU) and Alumina (AWC) viz.
OZ minerals announced the acquisition of a major stake in SFR through off-market dealings back in
July 2010 <LINK>.
Deutsche Bank on behalf of James Packer interests (Crown Casino) announced the acquisition of
almost 10% of EGP in late February 2012 through a complex derivative deal involving an intricate
web of lending agreements set up through Deutsche Bank <LINK>.
Mrs Rinehart's Hancock Prospecting secured a diluted 18.6% stake in Lakes Oil after buying $4.25
million of unsecured notes as part of an extended capital raising <LINK>.
CuDeco has consistently raised finance through large placements to firms such as Vanguard, New
Apex Asia, Sinosteel and China Oceanwide.
Alumina recently raised funds from CITIC representing 13% of the company but without
shareholders being offered an opportunity to participate. <LINK>.

The actions of major players in securing their requirements off-market question what all of the daily
churning of stock is about if not to manage the market and to prepare the way for corporate activity.
Particularly as trading churn represents a zero sum activity between those constantly selling shares back
and forth to each other. When funding is sought from influential corporations it can provide very powerful
incentives for ensuring that share prices remain low as the share price is often the benchmark from which
funding negotiations commence.
The activities around gaining major stakes in companies demonstrate that fund managers and corporate
interests are in league with each other in terms of corporate strategies. Usually, the seeds of a takeover
are germinated and then nurtured well before a bid is actually announced.
Market activities that facilitate major stakes in companies raise questions about the fairness of trading taking
place with share price suppression the main concern, and the possible misuse of funds under management
especially where excessive lending has contributed to dramatic share price falls in client holdings.
The TPG announcement heralded a 12.45% stake in Billabong (59,618,480 shares) which was secured from
the following interests:
Colonial First State Asset Management (Australia) Limited, and
Perennial Value Management Limited.
Holder Shares
C
o
l
o
n
i
a
l

F
i
r
s
t

S
t
a
t
e

CFS Imputation Fund
4,486,519
CFS Wholesale Imputation Fund
6,289,530
CFS Global Asset Management
489,323
CFS Wholesale Leaders Fund
10,031,298
P
e
r
e
n
n
i
a
l

V
a
l
u
e



NAB Asset Servicing
20,706,023
BNP
4,778,416
Citigroup
7,164,526
JP Morgan
5,520,042
JB Were
152,803

Total: 59,618,480
51

Substantial shareholder notices reveal that Colonial First State is an affiliate of CBA (Ref 7.1.3.8.1.10) and
Perennial Value Management is an affiliate of IOOF (Ref 7.1.3.8.1.6).
The pre-emptive move by TPG raises questions about whose interests were being served by all of the
securities lending and all of the trading that has taken place in forcing the share price down from $18
(2007) to $12 (2010) and then to the $1.10 mark just prior to the $1.45 BID by TPG.
The trading by both Colonial and Perennial in positioning the holdings for the TPG deal needs to be
considered along with issues such as:
Losses accruing to their clients (if/any) from their trading strategies;
The losses of those whose stock has been lent out to support the corporate positioning of others;
The opportunity presented to TPG in terms of an apparently undervalued share price ;
Possible collusion by fund managers to support lower prices, and;
The impact on trading and the fairness of the market for shareholders and all other investors.


7.1.3.9.1 TRADING BY IOOF HOLDINGS LIMITED and its SUBSIDARIES IN BILLABONG (BBG):
The holdings of IOOF affiliates as disclosed by various substantial shareholder notices are summarized
below. The notices cover the following periods:
Immediately before the Dec 19, 2011 share price collapse (Nov 28 notice);
After the Dec 19 share price collapse (notices Dec 21 & Dec 23), and;
Immediately before the TPG offer for their shares was tabled (Jul 3 notice).
IOOF affiliates are seen to have accumulated shares during the market turmoil of Dec 19 and especially in
the days and months that followed. The accumulation showed up on the register in the accounts of NAB
Asset servicing, JP Morgan, Citigroup and BNP all shown shaded below.

Substantial Shareholder Announcements
Holder/ IOOF
Affiliate
Registered Holder
Shareholding
Nov 28, 2011
Shareholding
Dec 21, 2011
Shareholding
Dec 23, 2011
Shareholding
Jul 3, 2012
Perennial
Investment
Partners Ltd
Northern Trust 566,544
627,417
-
NAB Asset Servicing 6,631,349 8,248,198
11,895,176
28,912,481
JP Morgan 2,495,200 2,882,414
4,344,708
7,949,486
JB Were 30,859 47,418
46,90
207,599
Citigroup 2,029,051 2,326,382
3,521,293
9.850,293
BNP 1,030,710 1.729.281
2,541,993
9,226,695
IOOF
Management
NAB Asset Servicing 1,440 1,440 1,440 1,440

Total 12,785,163 15,862,450 22,978,317 46,297,701


52

7.1.3.9.2 TRADING BY COMMONWEALTH SECURITIES AFFILIATES IN BILLABONG (BBG):
Affiliates of Commonwealth Securities showed falls in holding initially (Dec 28 notice), then strong
accumulation in response to the Dec 19 share price collapse (Feb 23 notice).
The holdings disclosed in the table reflect the net result from buying and selling but also take into account
the net share flows associated with securities lending and securities borrowing undertaken by CBA affiliates.
While selling results in a fall in holding so does the lending of stock along with the return of any borrowed
stock. Similarly buying results in an increase in holding along with the return of any stock that has been
lent out and any borrowings undertaken. The net result of all those types of share flows is what is declared
in a substantial notice.
Most of the accumulation of shares occurred in Colonial First State accounts (CFS 1 and CFS 3) both held by
Citicorp Nominees as custodian.

1 2 3 4 5
Sub Change Ceasing Notice Initial Notice Sub Change Sub Change
CBA Affiliate Registered Holder
Nov 15,
2011
Dec 28,
2011
Jan 30,
2012
Feb 23,
2012
July 4,
2012
Arcadian Asset Management Citicorp Nominees
5,748
5,748 55,419
55,419
163,344
ASB Group Investments Citicorp Nominees
76,002
126,798 240,075
129,013
378,389
Avanteous Investments Avanteous Investments
6,317
6,825 4,459
4,459
3,529
CBA Equities Share Direct Nominees
-
416,731 496,863
-
109,267
Colonial First State Acc. 1 Citicorp Nominees 11,274,039 4,498,260 4,827,949 14,213,875 27,109,221
Colonial First State Acc. 1 Citicorp Nominees
36,070
36,070 36,070

499,323
Colonial First State Acc. 1 Citigroup Global Market - 0 -
23,233
44,899
Colonial First State Acc. 2 Citicorp Nominees - 0 -
36,070
66,987
Colonial First State Acc. 2 BNP Paribas securities - - -
-
-
Colonial First State Acc. 2 National Nominees - - -
13,557
45,255
Colonial First State Acc. 3 Citicorp Nominees 4,278,996 5,017,025 6,592,016 6,288,966 12,025,706
First State Investments (UK) HSBC UK
5,381
5,381 7,561
7,561
14,196
CBA Officers Super Fund Citicorp Nominees
-
0 -
136,240
953,723
Realindex Investments Ltd Citicorp Nominees
392,028
424,636 543,211
543,211
1,709,101
Realindex Investments Ltd National Nominees
106,041
106,041 106,041
106,041
403,186

Totals 16,180,622 10,643,515 12,909,664 21,557,645 43,526,126
6.34% 4.2% 5.06% 8.45% 10.59%



7.1.3.9.3 CBA AFFILIATES BUYING & SELLING VOLUMES:
As mentioned, the substantial notices by CBA provided the overall balances represented by net buying and
selling data of all affiliated entities along with their net borrowing and lending data. To assess the buying
and selling undertaken by CBA affiliates separately it is necessary to examine the trading records of entities
which are also disclosed in the substantial shareholder notices. The net buying and net selling of BBG
shares by the various entities for each period as disclosed by substantial shareholder notices are set out in
the table that follows.
The two Colonial First State accounts (CFS 1 & CFS 2) that were the most active traders have been shaded.
53


Net Selling or Net Buying in the period covered by each notice
Change Notice Ceasing Notice Initial Notice Change Notice Change Notice
Totals
CBA Affiliates Nov 15, 2011 Dec 28, 2011 Jan 30, 2012 Feb 20, 2012 July 4
Realindex Investments L 440,705 32,608 200,576 0 1,463,035 1,663,611
CBA Equities Limited 416,731 416,731 1,988,703 109,267 2,514,701
First State Invest (UK) Ltd 5,381 2,180 2,180 0 0 2,180
Colonial First State (CFS 1) -3,363,771 -6,775,779 -9,703,835 9,409,159 13,422,040 13,127,364
Colonial First State (CFS 2) -402,771 - 8,000 13,557 62,615 84,172
Colonial First State (CFS 3) 711,607 738,029 3,361,196 2,762,104 5,736,740 11,860,040
ASB Group Investments 25,274 50,796 175,986 -111,062 249,376 314,300
Avanteous Investment Ltd 3,073 508 -1,055 0 0 -1,055
Acadian Asset Mngmnt. 18,818 21,423 150,481 0 107,925 258,406
Comm. Officers Super -422,903 - - 136,240 817,483 953,723
Totals -2,984,587 -5,513,504 -5,389,740 14,198,701 21,968,481 30,777,442


Importantly, based on the buying and selling records for the Jan 30, 2012 notice, 5.39 million shares moved
out of the accounts yet the substantial shareholder notice heralded the CBA Group as a new substantial
holder. The only way that could come about is if a large number of borrowed shares were transferred into
some of the affiliate accounts. If correctly interpreted then it demonstrates that a lot of short selling was
occurring within this group. Yet they proved over time to be extremely active accumulators of stock.

In the light of the above, the short selling very much takes on the appearance of a manipulative trading
tool used to pressure the market and to support the corporate positioning of the group as a future major
shareholder.



Re: Jan 30, 2012 Notice
Previous Holdings Market Activity between Nov 15 & Jan 30 Estimated Holdings Declared Holdings

Nov 15, 2011 SELLS BUYS NET Jan 30, 2012 Jan 30, 2012
CFS 1 11,274,039 20,090,794 3,787,166 -16,303,628 -5,029,589 4,827,949
CFS 3 4,278,996 3,743,655 7,842,880 4,099,225 8,378,221 6,592,016

CFS 1 obviously sold far more shares leading up to Jan 30, 2012 than it held on Nov 15, resulting in a
negative estimate for stock levels at Jan 30. The imbalance suggests extensive borrowing of stock to the
tune of around 10 million shares assuming of course that the Jan 30 holding has been declared correctly.

Re: Feb 20, 2012 Notice
Previous Holdings Market Activity between Jan 30 & Feb 20 Estimated Holdings Declared Holdings

Jan 30, 2012 SELLS BUYS NET Feb 20, 2012 Feb 20, 2012
CFS 1 4,827,949 0 9,409,159 9,409,159 14,237,108 14,213,875
CFS 3 6,592,016 556,709 253,659 -303,050 6,288,966 6,288,966

The 9+ million buys during February look to be associated with covering the short selling in the previous
period. Estimated holdings also match the disclosed holdings suggesting that no more share flows occurred
through securities lending. While, the strong buying following intense selling may have resulted in short
selling profits, not so obvious is why fund managers with as much knowledge as the one responsible for
CBA dealings would sacrifice their client holdings to facilitate lower share prices, if not for alternative
benefits.
The impact of share movements associated with buying and selling versus securities lending is highlighted
below for each substantial notice by considering the trading of the 2 most active entities CFS 1 and CFS 2, then
establishing an estimate for holdings based on their trading and then observing the holding that has actually
been declared. The difference is due to stock borrowing which can then be quantified.

Table: 7.1.3.9.3
54

Re: Jul 4, 2012 Notice
Previous Holdings Market Activity between Feb 20 & July 4 Estimated Holdings Declared Holdings

Feb 20, 2012 SELLS BUYS NET July 4, 2012 July 4, 2012
CFS 1 14,213,875 2,893,520 16,315,560 13,422,040 27,635,915 27,109,221
CFS 3 6,288,966 1,364,877 7,101,617 5,736,740 12,025,706 12,025,706

Estimated holdings based on the buying and selling that have been declared again match the holdings
disclosed in the substantial notice and again there was an absence of securities lending share flows. The
majority of purchases were in response to a large issue of shares by the company priced at $1.02 whereby
CFS 1 picked up 13.26 million shares from the issue and CFS 2 picked up 5.5 million shares.
If it wasnt for access to stock at $1.02 Colonial would not have been in a position to sign off with TPG, but
their trading profile strongly suggests attempts to position themselves firstly though helping to create an
undervalued share price and secondly through capitalizing on the undervalued share price leading to the
sign off with TPG.
The figures relating to the July 4 notice also indicate that their buying and selling from Feb 20 to Jul 4, 2012
having established a position that would be increased by cheap shares as part of any capital raising, was
effectively trading churn with approx. 3 million shares bought and sold. Such trading is often associated
with share prices being capped.



7.1.3.9.4 SUMMARY OF BILLABONG (BBG) TRADING IN RELATION TO CBA AFFILIATES
Trading by the group prior to the Dec 19 earnings downgrade is somewhat suspicious with some CBA
affiliates disposing of holdings while others accumulated. As previously mentioned, the group acting in this
way can be compared to a single trader buying and selling to themselves which would no doubt be
regarded as an attempt to unfairly influence pricing outcomes.
Significantly, as per the Nov 15 notice of Table 7.1.3.9.3
The CBA Officers superfund sold down all of their holding (422,903 shares) prior to the Dec 19 profit
downgrade.
Real Index Investments accumulated 440,705 shares at the same time the CBA Officers super fund
was selling their holding. It focusses attention on what they knew from their strong connections
within the industry and why the fund manager added to the Index fund while disposing the shares
of insiders?
The holding of CFS1 was also heavily sold down by a net 3.36 million shares, but at the same time
CFS 2 net accumulated 402,771 shares. If BBG was considered a sell then why wasnt CFS 2 also
selling?

55

Trading following the Dec 19 downgrade is also suspicious because of the following:
CFS 1 was again a heavy net seller in disposing of 6.78 million shares (Refer Dec 28 notice of Table
7.1.3.9.3)
Yet CFS 3 and CBA Equities accumulated over 1 million shares between them.
Perennial Value management, the other substantial shareholder who signed on with TPG, also
bought around 10 million shares while CFS 1 was selling heavily. (Refer Table 7.1.3.9.1, and the
notices for Dec 21 & Dec 23 2011, then compare to Nov 28, 2011).
In the light of the TPG agreement of July 25, 2012, the events very much have the appearance of
collusion taking place perhaps involving a number of fund managers.

Trading through late December and January saw CFS 1 heavily shorting (9.7 million sales) while its affiliate
CFS3 accumulated 3.36 million shares. Other CBA affiliates accumulated a further 1 million shares between
them. The trading shows CBA affiliates with strong bets either way and in the process likely to be heavily
influencing pricing outcomes. (Refer Table 7.1.3.9.1 Jan 30 notice). Again, the fund manager looked to be
selling out of one account and buying through others giving the impression of corporate manoeuvring
rather than genuine trading but possibly helping to distort the market for BBG securities while doing so.
Trading from Jan 30 onwards saw accumulation by CBA affiliates initially through heavy buying on-market
and then through participation in the Billabong fund raising of late June 2012. The fund raising involved a 6
for 7 entitlement offer (220 million shares) at $1.02 to raise $225 million.
The fund raising had the effect of causing massive dilution and also resulted in institutions increasing their
control over the register because of retail investors not taking up their full entitlements. The despondency
of retail holders in the face of the share price losing over 90% of its value is understandable however it also
played into corporate agendas as there was plenty of institutional interest in picking up all shortfalls
despite the efforts put into selling the share price down.



56

7.1.3.10.1 FURTHER INSIGHTS INTO THE TRADING OF SOPHISTICATED INVESTORS: UBS
The trading of UBS affiliates as per a substantial shareholder notice lodged on Dec 8, 2011 just before the
profit downgrade is summarized below. The notice is remarkable for the extent of stock borrowing activity
that has impacted the register compared to a paucity of buying and selling transactions.






Total Borrowed
6.70 million shares

Total Returned
5.68 million shares


Total Sells: Zero

Total Buys
5,051 shares

Total Borrowed
6.67 million shares

Total Returned
7.61 million shares

Total Sells: Zero

Total Buys: Zero

The announcement
refers to both Stock
Returned and Securities
Returned as well as
Stock Borrowed and
Securities Borrowed.

It is uncertain whether
the entries refer to
collateral flowing in &
out of accounts or to
borrowed shares
flowing in & out.
57

To add to the confusion concerning the terminology used, the following tables also refer to collateral that has
been received & returned as well as stock received & returned and securities received & returned.






Total Borrows
(Both Stock & Securities)
12.20 million shares

Total Returns
(Both Stock & Securities)
3.33 million shares

Total Sells:
176,088 shares

Total Buys:
79,338 shares

Collateral Received:
468,679 shares

Collateral Returned
243,084 shares

Total Borrows
(Both Stock & Securities)
3.16 million shares

Total Returns
(Both Stock & Securities)
12.45 million shares

Total Sells:
846,464 shares

Total Buys:
25,850 shares

Collateral Received:
1,145,204 shares

Collateral Returned
432,045 shares

58








Total Borrows
(Both Stock & Securities)
1.19 million shares

Total Returns
(Both Stock & Securities)
109,638 shares

Total Sells:
73,106 shares

Total Buys:
48,126 shares

Collateral Received:
597,565 shares

Collateral Returned
550,096 shares

Total Borrows
(Both Stock & Securities)
zero

Total Returns
(Both Stock & Securities)
zero

Total Sells:
zero

Total Buys:
19,708 shares

Collateral Received:
zero

Collateral Returned
zero

59











7.1.3.10.2 SUMMARY OF ALL UBS SHARE MOVEMENTS REGARDING TRADING IN BILLABONG: Dec 8,2011 Notice
Borrowed Shares Collateral Shares Market Transactions
Returned Received Returned Received Sells Buys
OFF ON OFF ON OFF ON
29,180,434 42,038,528 1,225,225 2,334,592 1,101,069 357,831

Despite the comprehensive transaction list spanning 4 months, the net accumulation of shares which
resulted in the entity becoming a 5% substantial holder was triggered by the 12 million parcel of stock
borrowed on Dec 5. The amount of buying and selling taking place was relatively minor. Without the 12
million borrow, 4 months of transactions would have balanced out as follows without a need for disclosure.
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 transaction summary associated with UBSs trading is extremely difficult to reconcile with what might
be regarded as normal trading. Even without the 12 million share loan the trading behaviour shows an
enormous disparity between shares bought and sold and the amount of shares borrowed and returned.
UBSs trading gives the impression that their borrowing activity may be as intermediary for others as it is
not supported by buying and selling. Gaining major shareholder status through borrowed shares
principally to support short selling and lower share prices reflects badly on the market system and gives
rise to possible share price manipulation concerns; particularly in the absence of any clarifying information.

Total Borrows
(Both Stock & Securities)
12.125 million shares

Total Returns
(Both Stock & Securities)
zero

Total Sells:
5,411

Total Buys:
179,758 shares

Collateral Received:
122,744

Collateral Returned
zero
OVERALL SHARE MOVEMENTS

OFF ON NET
31,506,728 44,730,951 13,224,223

OVERALL SHARE MOVEMENTS

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

It is noted that major shareholder status lapsed a few days later when the 12 million shares borrowed were
cancelled as per the following table of transactions. The use of the term cancelled as distinct from
returned which has been used for 29 million other share returns is extremely confusing. After all, a tranche
of shares borrowed and transferred into UBSs name to trigger major shareholder status would need to be
returned/ transferred off the register to cancel out the increased ownership.

60

7.1.3.10.3 TRANSACTION LIST FROM THE DEC 13, 2011 NOTICE: Ceasing to be a substantial BBG shareholder


















TRANSACTION SUMMARY: Dec 13 Notice
Borrowed Shares Collateral Shares Market Transactions
Returned Received Returned Received Sells Buys
OFF ON OFF ON OFF ON
15,258,243 1,530,000 854,708 748,832 9,237 24,021


7.1.3.10.4 DAILY DATA COMPARISONS
The large single transactions on Dec 5 (12 million shares borrowed) and Dec 8 (12 million shares returned)
would be expected to show up in official daily data released by the ASX and ASIC. That doesnt appear to
be the case as per the summaries of daily open short position changes and daily stock lending/ stock
borrowing data in the tables that follow. The key dates Dec 5 and Dec 8 where substantial share flows
occurred as noted above have been highlighted by shading.
OVERALL SHARE MOVEMENTS

OFF ON NET
16,122,188 2,302,853 -13,819,335

61

OPEN SHORT CHANGES COMPARED TO CHANGES TO NET BORROWING & NET LENDING DATA FOR BBG
2011
Changes to
Open Positions
Gross
Borrowings
Change
Net
Borrowings
Change to Net
Borrowings
Gross
Lending
Change
Net
Lending
Change to
Net Loans
Dec 2 -378,068 17,451,361 2,910,389 5,610,653 660,502 27,033,690 2,293,256 15,192,982 43,369
Dec 5 -520,477 17,499,189 47,828 5,327,100 -283,553 27,513,952 480,262 15,341,863 148,881
Dec 6 -254,983 16,635,307 -863,882 4,562,093 -765,007 26,559,236 -954,716 14,486,022 -855,841
Dec 7 138,838 16,360,238 -275,069 4,168,151 -393,942 26,409,109 -150,127 14,217,022 -269,000
Dec 8 -3,744,195 16,205,568 -154,670 3,715,088 -453,063 26,509,414 100,305 14,018,934 -198,088
Dec 9 4,179,864 16,903,474 697,906 4,180,577 465,489 27,488,336 978,922 14,765,439 746,505
Dec 12 531,824 15,851,951 -1,051,523 3,175,019 -1,005,558 26,659,365 -828,971 13,982,433 -783,006
Dec 13 179,866 16,767,262 915,311 3,232,579 57,560 27,786,805 1,127,440 14,252,122 269,689




Anomalies such as the above question the effectiveness of official reporting but also have an impact on-
market integrity. Persistent anomalies can rapidly lead to an erosion of confidence in the system itself.
Another issue regarding the 12 million share transactions concerns the possibility that it should have
triggered further substantial notices by the entity on the other side of dealings. The parcel equated to 4.7%
of the BBG register so it is likely that the lending of 12 million shares causing a fall in the lenders holding
perhaps should have triggered a ceasing notice. Also, upon the return of 12 million shares perhaps a
becoming a substantial shareholder notice might have been in order. The situation certainly needs
clarifying and in any case no such disclosures occurred.

7.1.3.10.5 FURTHER UBS TRADING ANOMALIES: Re-Nov 1, 2011 and Nov 8, 2011 BBG substantial notices
UBS also posted a substantial shareholder notice on Nov 1, 2011 and ceased being a substantial holder on
Nov 7. The borrowing of 7.47 million shares on Oct 27 followed by the subsequent return of 7.21 million
shares on Nov 2 was the trigger for the substantial holder disclosures.
BECOMING A SUBSTANTIAL HOLDER SUMMARY Nov 1, 2011 (UBS)
Borrowed Shares Collateral Shares Market Transactions
Returned Received Returned Received Sells Buys
OFF ON OFF ON OFF ON
32,106,705 38,883,857 0 0 0 1,843,935


The patterns of trading are very similar to those reported in the Dec 8 and Dec 13, 2011 substantial holder
disclosures with very large discrepancies between the extent of stock borrowing and the levels of buying
and selling in the market.
There were 420 separate transactions listed for the 4 month period of which just 10 were buying entries
(i.e. 2.4% of the number of entries). Yet, single buy transactions on 3 consecutive days over the 4 month
period accounted for 97% of all buying that took place over the 4 month period.
The trading objectives responsible for the share flows are difficult to comprehend other than that UBS
entities have been somehow extensively involved in supporting short selling but not on their own account.
The data further serves to demonstrate the paucity of information available that can accurately quantify
and accurately monitor what is actually occurring with short selling in the market.
Changes to open positions and changes to Net Borrowings and Net Lending data dont reflect the very large transactions
on Dec 5 and Dec 8 involving the borrowing and the return of 12 million shares.
SUMMARY OF SHARE MOVEMENTS

OFF ON NET
32,106,705 40,727,792 8,621,087
Total Holdings: 13.34 million (5.47%)
62

CEASING AS A SUBSTANTIAL BBG SHARE HOLDER SUMMARY Nov 7, 2011 (UBS)
The ceasing as a substantial holder notice came about mainly because of the return of 7.21 million
borrowed shares on November 2, 2011. The transaction summary again shows a disproportionate amount
of lending activity compared to on-market buying and selling.
Borrowed Shares Collateral Shares Market Transactions
Returned Received Returned Received Sells Buys
OFF ON OFF ON OFF ON
9,099,654 2,431,911 36,634 468,679 1,504,413 415,021


7.1.3.10.6 OPEN SHORT CHANGES COMPARED TO CHANGES TO NET BORROWING & NET LENDING DATA
Official data as summarized below again fails to reflect the large share flows in respect of UBSs stock
lending. The key dates for the two large transactions are highlighted with the changes that ought to have
impacted open short positions, net lending data and net borrowing data which are also highlighted.
Logically, a net 7.47 million borrowed shares on Oct 27 ought to have had an impact on the open short
position as well as the net lending and net borrowing situation and so too the net return of 7.21 million
shares on Nov 2.
Official data again fails to reflect the dealings disclosed by UBS.

2011
Changes to
Open Positions
Gross
Borrowings
Change
Net
Borrowings
Change to Net
Borrowings
Gross
Lending
Change
Net
Lending
Change to
Net Loans
Oct 26 580,142 17,883,703 -252,507 5,261,534 -126,166 25,044,220 -357,640 12,422,051 -231,299
Oct 27 8,632 17,760,239 -123,464 5,353,886 92,352 24,810,503 -233,717 12,404,150 -17,901
Oct 28 -1,090,730 17,945,015 184,776 5,275,843 -78,043 25,352,009 541,506 12,682,837 278,687
Oct 31 575,688 18,780,841 835,826 5,805,024 529,181 26,342,647 990,638 13,366,830 683,993
Nov 1 38,149 18,780,841 0 5,283,814 -521,210 26,863,857 521,210 13,366,830 0
Nov 2 -542,689 18,511,032 -269,809 5,071,146 -212,668 27,010,383 146,526 13,570,497 203,667
Nov 3 492,609 18,164,035 -346,997 4,976,282 -94,864 26,890,976 -119,407 13,703,223 132,726
Nov 4 1,125,661 17,665,140 -498,895 4,428,578 -547,704 26,460,871 -430,105 13,224,309 -478,914
Nov 7 1,270,572 18,303,037 637,897 4,927,861 499,283 27,199,063 738,192 13,823,887 599,578

7.1.3.10.7 COMBINED DATA: Re UBS Notices for Nov 1, Nov 7, Dec 8 and Dec 13, 2011
The discrepancies between stock lending share flows and on-market buying and selling for UBS affiliates
are further highlighted by combining the data for the 4 substantial shareholder notices. The result doesnt
necessarily reveal any wrongdoings, as stock lending and short selling are legitimate approaches to trading,
but what it does do is highlight how difficult it is to accurately monitor what is occurring with short selling
in the market and to accurately assess the impact that is having on price discovery.
Borrowed Shares Collateral Shares
Market
Transactions
Returned Received Returned Received Sells Buys
OFF ON OFF ON OFF ON
85,645,036 84,884, 296 2,116,567 3,552,103 2,614,719 2,640,808

OVERALL SHARE MOVEMENTS

OFF ON NET
10,640,701 3,315,611 -7,325,090
Total Holdings: 6.01 million (2.5%)
OVERALL SHARE MOVEMENTS

OFF ON NET
90,376,322 91,077,207 700,885

?
Strangely, UBS affiliates have engaged in massive
levels of stock borrowing and return of stock but
very little buying and selling in the market.
63


7.1.3.11.1 FURTHER INSIGHTS INTO THE TRADING OF SOPHISTICATED INVESTORS: CREDIT SUISSE
A substantial notice by Credit Suisse for BBG in February 2012 (12.85 million shares for 5.04% of the
register) reveals trading behaviours in complete contrast to those of UBS. Stock borrowing transactions in
the Credit Suisse statement were better supported by the levels of selling and buying taking place.
However there are large discrepancies between stock borrowed and stock returned if the selling is
assumed to be short selling. While plenty of lending has occurred which could have covered the sales, no
stock returns have coincided with what is assumed to be short covering purchases. In contrast to the UBS
data, Credit Suisses 568 transactions in BBG over a 4 month period contained only 42 stock borrowing
transactions (i.e. 7.2%) with the majority of transactions representing buys and sells in the market.
BECOMING A SUBSTANTIAL HOLDER SUMMARY Feb 20, 2012 (Credit Suisse)
Borrowed Shares Collateral Shares Market Transactions
Returned Received Returned Received Sells Buys
OFF ON OFF ON OFF ON
576,121 10,515,000 0 0 6,029,096 7,184,728

The information in Credit Suisses ceasing to be a substantial holder notice in late March 2012 (below) is
more in balance with what might be expected with short selling and short covering operations. Of 132
separate transactions listed in the notice, about one third of them were associated with stock borrowing
and the remainder with buying and selling.
CEASING TO BE A SUBSTANTIAL HOLDER SUMMARY Mar 26, 2012 (Credit Suisse)
Borrowed Shares Collateral Shares Market Transactions
Returned Received Returned Received Sells Buys
OFF ON OFF ON OFF ON
1,466,370 1,235,013 0 0 2,875,897 2,721,785

The net reduction of shares in the holding of 385,460 meant that Credit Suisses holding dipped under 5%
to around 4.92% of the register. Hence the ceasing to be a substantial holder notice.

OVERALL SHARE MOVEMENTS

OFF ON NET
6,605,217 17,699,728
11,094,511

Total Holdings: 12.85 million (5.04%)

OVERALL SHARE MOVEMENTS

OFF ON NET
4,342,267 3,956,798 -385,469

Total Holdings: 12.5 million (4.92%)

64

7.1.3.12.1 FURTHER INSIGHTS INTO THE TRADING OF SOPHISTICATED INVESTORS: MACQUARIE GROUP
Macquarie became a substantial shareholder in Billabong on July 5, 2012 following their involvement in a
capital raising. The substantial holder notifications in relation to Macquarie Group were as follows.
5/07/2012 Becoming a substantial holder from MQG PDF 23,857,728 shares 5.80%
shares
27/07/2012 Ceasing to be a substantial holder from MQG PDF
30/07/2012 Becoming a substantial holder from MQG PDF 25,122,011 shares 5.24%
7/08/2012 Ceasing to be a substantial holder from MQG PDF

JULY 5: Becoming a substantial holder
The 4 months of prior trading covered by the notice involved entitlement purchases from the institutional
placement, together with 6.88 million shares from the market. Macquarie entities also sold 3.0 million
shares and were involved with securities lending as well.
Borrowed Shares Collateral Shares Market Transactions
Returned Received Returned Received Sells Buys
OFF ON OFF ON OFF ON
3,398,085 4,067,952 0 0 3,000,701 22,321,405
Net share flows of 19.99 million shares but a substantial holding declaration of 23.86 million shares implies
that the Macquarie Group affiliates held 3.87 million shares prior to the 4 months covered by the notice.
A summary of just some of their dealings is provided below which indicates the spread of algorithmic trades
taking place but also highlights some of the oddities of trading where shares were bought and sold on the
same day at the same price but werent actually crossings. Crossings were listed separately.

Mar-02 Buy 200 2.98
Mar-02 Sell 15,469 3.00
Mar-02 Buy 2,159 3.00
Mar-02 Sell 2,159 3.00
Mar-02 Buy 109 3.09
Mar-02 Buy 109 2.99
Mar-02 Buy 109 2.98
Mar-05 Sell 1 2.90
Mar-05 Sell 218 2.93
Mar-05 Sell 989 2.92
Mar-05 Buy 62 2.92
Mar-05 Sell 62 2.92
Mar-05 Sell 2,055 2.92
Mar-05 Sell 219 3.01
Mar-06 Buy 1,509 2.93
Mar-07 Sell 26,640 2.75
Mar-07 Buy 26,640 2.75
Mar-07 Buy 26,640 2.75
Mar-07 Buy 219 2.86
Mar-07 Sell 109 2.79
Mar-07 Sell 1 2.81
Mar-07 Sell 1,878 2.75
Mar-09 Sell 15,360 2.70
Mar-09 Sell 20 2.70
Mar-09 Buy 20 2.70
Mar-09 Sell 20 2.70
Mar-09 Sell 328 2.80
Mar-09 Sell 20 2.70
Mar-09 Buy 2,425 2.70
Mar-12 Buy 25 2.78
Mar-12 Buy 41,944 2.78
Mar-12 Buy 41,944 2.78
Mar-12 Sell 41,944 2.78

Mar 13 Buy 1,966 2.8
Mar 13 Sell 1,829 2.79
Mar 14 Buy 808 2.88
Mar 15 Buy 30,106 2.91
Mar 15 Sell 30,106 2.91
Mar 16 Buy 220 2.99
Mar 16 Buy 110 2.98
Mar 21 Borrow 830,000 3.1
Mar 21 Borrow 200,000 3.1
Mar 21 Buy 100 2.84
Mar 21 Buy 22,000 2.82
Mar 21 Sell 22,000 2.82
Mar 21 Sell 2,380 2.85
Mar 21 Sell 1,176 2.82
Mar 22 Buy 3 2.77
Mar 22 Buy 100 2.83
Mar 22 Buy 109 2.78
Mar 23 Borrow 150,000 2.95
Mar 23 Buy 15,000 2.75
Mar 23 Buy 15,000 2.75
Mar 23 Sell 15,000 2.75
Mar 26 Sell 131 2.73
Mar 26 Sell 285 2.73
Mar 26 Sell 678 2.70
Mar 26 Sell 2,300 2.72
Mar 26 Buy 2,300 2.72
Mar 27 Sell 49 2.81
Mar 26 Sell 2,300 2.72
Mar 26 Buy 2,300 2.72
Mar 26 Sell 285 2.73
Mar 26 Sell 678 2.70
Mar 26 Sell 2,300 2.72
Mar 26 Buy 2,300 2.72

Mar 27 Sell 49 2.81
Mar 27 Sell 99 2.81
Mar 27 Sell 258 2.83
Mar 27 Sell 2,300 2.80
Mar 27 Buy 2,300 2.80
Mar 28 Sell 407 2.84
Mar 28 Sell 217 2.86
Mar 28 Sell 294 2.80
Mar 28 Sell 2,300 2.83
Mar 28 Buy 2,300 2.83
Mar 29 Sell 1,653 2.79
Mar 30 Sell 231 2.79
Mar 30 Sell 292 2.78
Mar 30 Buy 2,200 2.78
Mar 30 Sell 2,200 2.78
Apr 2 Sell 2,160 2.80
Apr 2 Buy 10,047 2.78
Apr 2 Buy 2,250 2.81
Apr 2 Sell 2,250 2.81
Apr 2 Buy 220 2.80
Apr 3 Sell 253 2.80
Apr 3 Buy 2,100 2.83
Apr 3 Sell 2,100 2.83
Apr 13 Buy 4,005 2.82
Apr 13 Buy 6,309 2.82
Apr 16 Buy 110 2.83
Apr 16 Buy 110 2.83
Apr 16 Sell 220 2.83
Apr 13 Buy 1,988 2.81
Apr 13 Buy 1,174 2.82
Apr 16 Buy 6,626 2.85
Apr 16 Sell 6,626 2.85
Apr 16 Sell 6,626 2.85

OVERALL SHARE MOVEMENTS

OFF ON NET
6,398,786 26,389,357 19,990,571

Total Holdings: 23.86 million (5.8%)

65

In the Macquarie example, although the volume sizes of the unusual trades are negligibly small it does
focus attention on what the trades are attempting to achieve.
JULY 27: Ceasing to be a substantial holder notice
Macquarie Group ceased as a substantial shareholder on July 27 with combined holdings dipping under
5%. Although not stated on the notice the disclosed trading history showed a net share fall in ownership of
4.908 million shares representing a 4.61% holding in Billabong.

Borrowed Shares Collateral Shares Market Transactions
Returned Received Returned Received Sells Buys
OFF ON OFF ON OFF ON
1,178,143 75,000 0 0 6,196,061 2,391,145

The July 27 notice also introduces a different type of securities lending agreement to that associated with
Stock Lending. With stock lending, shares are borrowed in return for collateral which may be cash or other
securities. The borrower agrees to return the securities sometime in the future in exchange for the return
of the collateral being held by the lender.
A Repurchase Agreement is quite different and refers to repos or reverse repos and buy/sell backs of
securities. A buy/sell back agreement between two signatories enables shares to be sold from one to the
other to raise cash but with an agreement from the buyer that they will be sold back at an agreed price to
the seller at some time in the future.
The seller receives cash that can be used for whatever purposes thought to be advantageous, and the
seller receives shares that can be loaned to short sellers or used as collateral in other short selling deals.
When the shares are recalled the buyers cash is given back in return for the shares.
Some of the wording of the buy/sell back agreement in the July 27 notice by Macquarie is shown below if
only to demonstrate the difficulties faced by retail investors in comprehending the intricacies of what is
essentially a straight forward buy and sell arrangement.

OVERALL SHARE MOVEMENTS

OFF ON NET
7,374,204 2,466,145 -4,908,059
Total Holdings: 18.95 million (4.61%)

66

JULY 30: Becoming a substantial holder
On July 30, Macquarie Group again became a substantial shareholder with the disclosure of 25,122,011
shares representing 5.24% of Billabong. However the increase in ownership disclosed in the notice does
not match the trading data supplied with the notice and which is summarized below.
Borrowed Shares Collateral Shares Market Transactions
Returned Received Returned Received Sells Buys
OFF ON OFF ON OFF ON
4,286,131 1,996,975 0 0 10,321,782 31,629,365

As shown in the table, trading disclosed for the period July 7 to July 30, 2012 resulted in 10.32 million sales
and 31.63 million purchases. The purchases were made up of 21.61 million shares taken up as part of a
capital raising by the company, and 10.02 million purchases from the market itself.
Allowing for stock borrowing share flows, the net increase from trading for the period July 7 to July 30 was
19.01 million shares which is additional to the retained holding from the previous notice (July 30) of 18.95
million shares. Total retained shares therefore equated to 37.96 million shares yet only 25.12 million were
declared in the notice.
If the holding disclosed in the July 30 notice of 25.12 million is actually correct, then it means that there
must have been another 12.84 million sales or returns of borrowed stock still to be accounted for. The
apparent error is a concern and looks to have slipped past the notice of regulators who claim to be very
strong on timely and accurate disclosure.
Also of concern are the inconsistent levels of disclosure that accompanies substantial shareholder notices
and the difficulties with interpreting what has actually taken place. Part of the problem is the way a lot of
the information is presented which would even make the job of regulators unnecessarily harder. Despite
the apparent error outlined above Macquaries reporting is very extensive whereas Invescos by way of
comparison is minimalist. The announcements by Deutsche Bank on Mar 2, 2012 in relation to Echo
Entertainment Group (EGP) also provides an example of how difficult it can be to ascertain what exactly
has taken place when a major corporate move occurs. (Refer Sect 7.1.4.3.2).

AUGUST 7: Ceasing to be a substantial holder
Macquarie Group again ceased to be a substantial shareholder on August 7, 2012 with trading resulting in
a net reduction in holdings of 1,377,251 million shares.
Based on the previous disclosure by the Macquarie Group of 25.12 million shares as at July 30, the outflow
of 1,377,251 million shares meant that the holding at Aug 7 stood at 23,744,760 million shares representing
4.95% of the company.

Borrowed Shares Collateral Shares Market Transactions
Returned Received Returned Received Sells Buys
OFF ON OFF ON OFF ON
692,321 540,000 0 0 1,378,334 153,404

OVERALL SHARE MOVEMENTS

OFF ON NET
14,607,913 33,626,340 19,018,427

Total Holdings: 25.12 million (5.24%)

OVERALL SHARE MOVEMENTS

OFF ON NET
2,070,655 693,404 -1,377,251

Total Holdings: 23.74 million (4.95%)

67

7.1.3.13.1 BILLABONG (BBG) REGISTRY ACTIVITY Shareholder Changes (from Annual Report Top 20 Lists)
The shaded holdings generally represent institutional omnibus accounts and/or other holdings that are
managed by custodians and/or corporate broker accounts that are likely to be representing institutions or
pooled funds.
TOP 20 SHAREHOLDERS 2010 2011 2012
HSBC Nominees 43,256,012 34,089,046 53,123,837
J P Morgan Nominees 39,070,171 50,222,395 88,155,051
National Nominees 32,984,219 49,032,954 65,405,980
Citicorp Nominees 27,792,512 23,836,134 59,076,243
ANZ Nominees 4,419,936 - -
Cogent Nominees 2,714,798 2,932,267 -
RBX Dexia 3,055,638 3,117,020 -
Aust Reward Alliance 1,928,657 - -
AMP Ins 1,341,148 1,566,780 2,390,100
CRS Nominees 939,378 - -
UBS Wealth - 1,121,409 2,129,176
Perpetual Trustees - 776,292 -
Queensland Inv Corp - 2,564,054 2,434,921
BNP Paribas Noms - - 10,281,082
Goldman Sachs - - 3,841,677
Bond St Custodians - - 3,772,533
CS Fourth Nominees - - 2,591,629
Catholic Church Ins - - 2,000,000
Argo Investments 1,180,528 1,180,528 -
Gordon Merchant 37,770,098 37,770,098 69,705,463
Jontex P/L 9,306,839 1,315,578 -
P Colette 2,973,289 2,973,289 5,521,824
Paul Naude 1,105,988 1,045,988 -
CPU Share Plans 1,056,056 1,081,904 -
Derek O'Neil 970,962 1,320,271 -
Deep Investments P/L - - 2,842,858
Crown Ace - - 2,785,715
CGA No 2 - - 1,976,959

STATISTICS 2010 2011 2012
Full Register 2531,22,552 254,037,587 478,944,292
Top 20 Totals 211,866,229 215,946,007 378,035,048
% of Register 83.7% 85.0% 78.9%
Institutions 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%

OPEN SHORTS 6,667,064 22,069,845 7,305,458

The share flows on the register are contrary to what might be expected from a company becoming a poor
investment because of a deteriorating earnings outlook, substantial debt levels and a share price that has
lost around 90% of its value in 3 years of trading.
The retention of shares by the largest institutional holders despite all of the selling and buying that has
taken place suggests a degree of collusion/co-operation by fund managers, particularly in view of stock
being feely made available for:
Extensive levels of short selling which has accelerated the capital losses faced by institutional
investors as well as all other shareholders, and;
Short covering where approx. 40 million short positions were conveniently covered between July 19
and September 21, 2012 with negligible impact on the share price.

The ownership of the Company despite 3 turbulent
years of trading has been dominated by institutions,
the sector with access to quality information and
quality research.
Importantly, institutions maintained their ownership at
around 63% of the register (actually increasing it by 4%
between 2010 and 2011 before dropping back in 2012)
and have consistently accounted for around 78% of the
Top 20 holders. The solidarity by institutions on the
register raises questions about how genuine all of the
selling has been over the 3 year period.
The retention of holdings by the largest holders and
the most informed investors at a time the Companys
outlook and share price has deteriorated markedly,
doesnt make logical sense. Major institutions have
generally maintained their levels of ownership and any
reductions by the likes of HSBC in 2011 look to have
been picked up by JP Morgan and/or National
Nominees rather than being sold randomly into the
market as disgruntled holders.
The reductions by HSBC could also have been largely
due to stock lending given the increase in open short
positions from 2010 to 2011 of around 15.4 million
shares. In that case JP Morgan & National may have
been the buyers of shares sold short which if true looks
to be a somewhat convenient relationship.
Major holders also look to have taken up their
entitlements in the major fund raising that took place
in 2012 with a few familiar corporate names also
appearing on the register as a result of the placement.

Trading data in effect adds a whole new dimension to the demise of Billabong and questions the trading
behaviours that sit behind anomalies. A key outcome of research is to seriously question the core values of a
trading system that can allow entities who dont own stock to emerge as substantial shareholders by taking
control of the shares of others and then using them to destroy as much shareholder value as possible.
68

7.1.3.14.1 GENERAL COMMENTS IN RELATION TO TRADING:
While it is easy to apportion blame for the demise of a companys share price to falling revenues and/or
disappointing operational performances, what the trading in Billabong brings to light is the trading
methods used to profit from perceived bad news. The same is true for the trading methods used to
dramatically re-rate CuDecos share price on perceived bad news about its resource on Aug 18, 2010. News
is what it is but it shouldnt be allowed to justify manipulative trading activity or prevent dubious trading
that leads to glaring trading anomalies from being properly investigated.
In view of the substantial falls in the BBG share price, the lack of transparency about what is taking place
combined with persistent trading anomalies requires thorough investigation. The Issues include:
The consistent mismatches in official data relating to short selling, open short positions and stock
lending
The covering of large short positions without impact to the share price.
The management of exposed short positions by avoiding price discovery in the market
A lack of transparency in relation to the trading taking place even from the point of view of market
regulators. For example:
o The trading reported by UBS as a substantial shareholder occurred prior to a large fall in the
share price on Dec 19, 2011 and they havent lodged a substantial notice since. UBS trading has
generally passed unnoticed as the ownership levels of UBS affiliates has been sitting below the
5% compulsory reporting threshold. The same is true for Credit Suisse with no further
substantial updates to the market. The fact that they no longer have substantial shareholder
status certainly doesnt mean that they have ceased being involved as active traders but it does
mean that their activities are completely opaque to the market.
o There have been numerous entities that have gained and subsequently relinquished major
holder status and have used extensive levels of short selling with their trading as well. NAB,
COM, IFL and Invesco are cases in point. While their net position changes have been noted,
there is no way of being able to assess whether all of their algorithmic trades and/or their off-
market dealings have been above board. The same applies to all other active traders particularly
those who dont breach the 5% substantial shareholder reporting requirement. Algorithmic
trading could be masking all manner of transgressions flagged by existing surveillance regimes.
Irregularities in trading data accompanied by grossly undervalued share prices are suggestive of high
levels of unorthodox or possibly manipulative trading behaviours. Especially when artificially low prices
give rise to opportunistic takeover bids at very substantial premiums to say the 3 month volume
weighted average price (i.e. the VWAP) leading up to the timing of the bid. It is an indication that prices
may have been pushed deliberately low in an attempt to try to make offers attractive to disenchanted
shareholders.
There is no question that anomalous trading data seriously detracts from the integrity of the market. It also
leads to a loss of confidence by market participants who become cynical about the market system itself and
reduce their exposure to it. Without confidence markets simply cannot perform the roles expected of them.

The situation faced by Billabong and a large number of other ASX stocks raises serious regulatory issues for
the government. Clearly, trading behaviours that can accomplish share price manipulation with safe passage
provided by the system guidelines currently in use represent an intolerable situation for investors. It is also an
intolerable situation for all Australian workers who are forced to participate in a seriously flawed system
through compulsory superannuation arrangements.

69

7.1.3.15.1 REGARDING POSSIBLE COLLUSION BY FUND MANAGERS, BROKERS AND THEIR AFFILIATES
There are precedents for fund managers colluding with their trading that need to be kept in mind when
considering trading issues concerning Billabong and other ASX companies. The following extract is from the
release of documents relating to an anti-trust law suit in the US.

Article 1: <A Lawsuit Blows the Lid Off Shady Deals>
The 221-page complaint goes through 27 transactions, and with each, presents not only
persuasive economic analysis, but more important, damning e-mails showing how the heads of
each of the firms were involved in submitting sham bids, sharing information about their offers,
working with management of the target companies to restrict the sales process, enforcing
elaborate systems of quid pro quos (for instance, not submitting a bid with the expectation of
being cut in on that deal or future deals), and other forms of market manipulation. The messages
make clear that the intent was to reduce competition and buy the companies on the cheap.
Collusion by fund managers perhaps servicing the corporate objectives of undisclosed influential clients
does go a long way in trying to explain the share market reactions to operational problem faced by
Billabong in running their business. Certainly in the absence of plausible alternatives for widespread
trading anomalies it does. The Billabong situation might briefly be summed up as follows:
A possibly engineered collapse in the share price initially using the opportunity/camouflage
offered by a financial report (Aug 2011) and an earnings downgrade (Dec 2011) to force prices
dramatically lower;
- Engineered in the sense that overreactions are likely to have occurred in trading brought about
specifically by dubious trading behaviours. When compared to share prices a couple of days
before each announcement and a couple of days after each announcement, falls associated with
the two announcements amounted to 38% and 54% respectively.
Attempts to take control of an undervalued company in order to carve up assets;
Massive losses being incurred by pooled funds under management as well as retail investors;
Unknown trading entities prospering from the destruction of wealth principally through extensive
short selling and dubious trading strategies;
Likely support by various fund managers and trading entities in facilitating trades and apportioning
losses.
Without proper levels of transparency and in the face of persistent data anomalies market observers are
forced into prognostications such as the above to try and rationally explain what is playing out in the
markets. The observations may in fact be demonstrating how large scale corporate objectives are being
achieved across the ASX and not just in Billabong, and at the same time, they may be demonstrating how
legalized share price manipulation is able to occur.
TWO SCENARIOS IN RELATION TO BBG:
1. In a market that is fair and reasonable and acting with integrity at all times and with price discovery
faithfully matching demand between genuine buyers and sellers, it is possible that disappointed
investors in quitting their holdings have forced prices lower than they ought to have been based on
company fundamentals. Value investors in recognizing an undervalued asset have then moved to
take advantage of the situation. Perhaps they have regarded the low share price as just too
attractive to resist and so have stepped out of the shadows to launch bids?

2. It is also possible that the low share price is the result of an intensive targeting of the Company in
the market by predatory interests to render the Company vulnerable before making a BID. In that
scenario, arms length affiliates or even anonymous intermediaries may have been used to carry
out pre-determined trading objectives to force prices lower and to prepare the way for corporate
activity.
70

The extensive data anomalies evidenced in trading favour the latter scenario as being closer to reality. The
only way to get to the heart of investor concerns and to establish what is really taking place is through the
thorough auditing of the accounts of the entities who have dominated trading. Of interest would be the
dealings of fund managers, the trading of brokers who have acted for fund managers and the client
holdings that have been used in apportioning trades. Also of interest would be the details relating to off-
market trading that has taken place, the level of involvement in securities lending and the management of
short position exposures.
The reason not to blindly accept data anomalies as just a peculiarity of trading on the ASX is the
widespread acknowledgement of fraud in securities trading as any google search on the internet will
quickly reveal. There are reports of massive penalties handed to all of the major investments banks
because of trading and corporate indiscretions both in Australia and overseas. The reports include
household names such as Deutsche Bank, Citigroup, JP Morgan, UBS, Morgan Stanley, HSBC and
Macquarie. Private equity funds associated with securities lending also figure prominently.
There are also reports of suspect dealings involving powerful mutual funds such as the following court
action which actually lists TPG in connection with collusion in attempting to secure the assets of targeted
companies cheaply through unfair means. TPG of course has been a bidder for Billabong.

Article 1 contd: <A Lawsuit Blows the Lid Off Shady Deals>
Thanks to motions filed by the New York Times, a federal judge in Boston released court filings this week
that had previously been under seal in a class action, anti-trust lawsuit -- Dahl v. Bain Capital Partners --
against the eleven biggest and most blue-chip names in the private-equity industry, including Blackstone,
Carlyle, Goldman, and TPG. The plaintiffs contend that they lost billions as shareholders in companies that
were sold at lower prices than they would have otherwise fetched in the 2003 to 2007 period due to buyer
collusion through a system they called club deals.

Further research on TPG raises additional questions about their record as a good corporate citizen as per
the following extracts of articles also published on the internet.
Article 1 contd <LINK>
..the lawsuit depicts a secret pact between the firms that divided up the big deals among themselves and
artificially and illegally kept their prices low. There was a you dont bid on my deal, I wont bid on
yours understanding between the firms, according to the lawsuit. In early 2006, Bain, K.K.R., and Merrill
Lynch teamed up with HCA management to pay $32.1 billion for the hospital chain. At the time, it was the
largest leveraged buyout and turned out to be a hugely profitable deal. K.K.R. expressly asked its
competitors to step down on HCA and not bid on the company, according to an e-mail that was unsealed
and written by Daniel Akerson, then a partner at Carlyle and now the chief executive of General Motors. The
complaint includes several other e-mails explaining the lack of competition in the bidding for HCA.
Two colleagues at the private equity firm TPG e-mailed each other about the firms reasons for deciding to
not compete for HCA, according to the lawsuit. All we can do is do unto others as we want them to do unto
us, Jonathan Coslet, a TPG executive, wrote. It will pay off in the long run even though it feels bad in the
short run.

Article 2: PETCO ANIMAL SUPPLIES SHAREHOLDER LITIGATION CLASS ACTION RESULTS IN A $16 MILLION SETTLEMENT
The PETCO Animal Supplies shareholder litigation class action settlement reportedly resolves a lawsuit over whether
Defendants breached their fiduciary duties to the shareholders of PETCO in connection with the October 26, 2006
acquisition of PETCO by several of the affiliates and/or subsidiaries of Leonard Green & Partners L.P. and TPG Capital,
L.P., including the claims that the disclosures concerning the acquisition were deficient and that the acquisition price
was inadequate. The settlement provides for the payment of $16 million for the benefit of all Persons who held
PETCO common stock as of July 13, 2006 <LINK>
71

Article 3: FORMER TPG ASSOCIATE FOUND LIABLE FOR HIS ROLE IN SERIAL INSIDER TRADING RING
The Commissions complaint alleged and the jury found that Gowrish, a former associate at multi-billion dollar
private equity firm TPG, misappropriated material nonpublic information from his employer in connection with TPGs
negotiations to acquire Sabre, TXU, and ADS. Gowrish tipped the confidential acquisition information to his long-time
friend, Adnan Zaman, a former investment banker at Lazard Frres & Co. LLC. Zaman, in turn, tipped the information
to their two friends, Pascal S. Vaghar and Sameer N. Khoury. On the basis of the information provided by Gowrish
through Zaman, Vaghar and Khoury then traded Sabre, TXU, and ADS securities, realizing approximately $375,000 in
illicit profits. The Commissions complaint alleged that, in exchange for the confidential information, Vaghar provided
cash kickbacks to both Gowrish and Zaman. The jury found that Gowrish violated Section 10(b) of the Securities
Exchange Act of 1934. <LINK 1, LINK 2>

Article 4: J. CREW APPAREL SHAREHOLDER LITIGATION REACES A $10 MILLION SETTLEMENT
On December 2, 2010, BLB&G filed a class action complaint (the "Complaint") in the Delaware Court of Chancery on
behalf of City of Orlando Police Pension Fund and similarly situated public shareholders of apparel retailer J. Crew
Group ("J. Crew" or the "Company") challenging the terms of a proposed sale of the Company to a buyout group that
included TPG Capital, L.P. ("TPG"), Leonard Green & Partners, L.P. ("Leonard Green") and the Company's Chairman
and CEO Millard Drexler (the "Proposed Transaction"). Among other things, the Complaint alleged that Drexler
conspired with TPG representatives on the J. Crew board of directors (the "Board") to improperly structure the
Proposed Transaction to favor TPG, and dissuade other interested parties from bidding for the Company <LINK1>
J. Crew Group Inc. and the two private-equity firms buying the retailer agreed to pay $16 million to resolve investor
lawsuits over the deal. The suing shareholders accused Drexler of using his executive clout to create a sale process that
excluded all potential buyers except TPG and Leonard Green, blocking other bidders from making better offers. <LINK2>

Article 5: CREDITOR SUES EQUITY FIRMS TPG, APAX FOR $358 MILLION
A New York creditor sued to collect 268 million euros ($358 million) owed under notes issued by Hellas
Telecommunications Finance S.C.A., one of a group of companies organized as part of the 2005 acquisition of a Greek
mobile phone company. Cortlandt Street Recovery Corp claims private equity firms TPG Capital LP and Apax Partners
got a group of companies to buy a firm, then borrowed heavily, paid the loan proceeds to the equity firms and their
funds, and left Hellas insolvent and unable to repay the loans, according to the lawsuit. <LINK 1>
Cortlandt Street Recovery Corp claims private equity firms TPG Capital and Apax Partners carried out a fraud known
as a "bleed-out," in which owners of a company transfer the assets to themselves, "on a scale so grand it would
make organized crime jealous," according to the lawsuit. <LINK 2>

Article 6: SEC FILES SETTLED ACTIONS AGAINST TPG CAPITAL FOR SECURITIES FRAUD AND DISCLOSURE VIOLATIONS
The Commission today announced the filing of settled actions against James Cassidy and his wholly-owned company,
TPG Capital Corporation, for securities fraud and disclosure violations. The Commission alleged that, prior to selling
certain "blank check" companies that they controlled, Cassidy and TPG Capital made false or misleading statements
in documents that were filed with the Commission on behalf of those companies, and that they caused violations of
certain books and records provisions of the Exchange Act <LINK>

The above research articles reinforce the reality that collusion perceived or otherwise is often associated
with the corporate targeting of major companies by predatory private equity firms such as TPG. The
articles in no way suggest wrong doing by TPG in relation to Billabong but emphasize the need to take data
anomalies and dubious trading practices very seriously.
72

The problem with trading anomalies is that they suggest unorthodox trading activities and everyone who
has been an active trader or has become associated with active traders comes under suspicion if any
wrong doing is taking place.
At least a thorough review of the trading behaviours and the trading relationships including the securities
lending arrangements responsible for a $12 company becoming a 95 cent company in the space of 3 years,
would clear the air for all of those who have been active traders of the stock. Such investigations need to
ignore the difficulties faced by the company with its commercial operations which can be conveniently
used to mask manipulative activity.
It is the specific trading behaviours not the difficult market conditions faced by Billabong which is the
central issue here. The trading behaviours that generate anomalies need to be accounted for if markets are
to have any semblance of integrity and fairness.




73


Section 7.1.4
A REVIEW OF ECHO ENTERTAINMENT GROUP TRADING
(ASX CODE: EGP)

74

7.1.4.1 ECHO ENTERTAINMENT GROUP (EGP) Share Price and Open Short trends from Jun 16, 2011 to Dec 31, 2012
Echo Entertainment was the result of a demerger of Tabcorp interests leaving Tabcorp to run its wagering
and poker machine business and Echo to run Star City Casino in Sydney and three casinos in Queensland.
Under the demerger, Tabcorp shareholders received one share in Echo for each of their Tabcorp shares.
Echo Entertainment shares commenced trading as EGP on Jun 6, 2011.
























The demerger of Echo (EGP) from Tabcorp (TAH) resulted in EGP trading initially at $4.50, while TAH fell
from $7.75 to $3.35 (a fall of $4.40) to reflect the fact that its Casino interests had moved out of their
control and into the Echo Group. At the end of December 2012, EGP traded at $3.44 while TAH was $3.05.
The combined holdings represent a fall of a 19.4% fall in value from immediately prior to the demerger.

0
10
20
30
40
50
60
70
M
i
l
l
i
o
n
s


Share Price
$4.70

$4.50


$4.30


$4.00



$3.70


$3.50

$3.30
Open Shorts
80 mill

60 mill

40 mill


20 mill
0 mill

2011


Jun 6


Dramatic increase in open shorts
5/03/2012 6,256,464
6/03/2012 48,132,371

A 9.2% stake
secured by Crown
via a derivative deal
The covering of 55 million
short positions had no
upward impact on prices
suggesting a degree of co-
operation/collusion between
the parties involved
Unusual Changes
28/03/2012 51,096,467
29/03/2012 5,591,973
30/03/2012 51,084,803

75

7.1.4.2 BACKGROUND
Right from its inception following the demerger of Tabcorp, Echo has been surrounded by takeover
speculation. James Packer who has a large interest in Crown Casinos made his intentions known by
announcing 17 days after Echo Entertainment commenced trading on the ASX that Crown had secured an
economic interest in each of Tabcorp Holdings and Echo Entertainment Group equivalent to 4.9% of the
issued shares in each company. The interest was by way of cash settled equity derivatives secured prior to
the Tabcorp demerger.
The volatility in the share price in late February 2012 was due to Crown (James Packer) announcing that it
had secured 10% of Echo by way of another cash settled derivative that would deliver 68,800,000 shares in
exchange for $256.6 million ($3.73 per share). The cash settled derivative terminated the previous deal
which targeted 4.9% of EGP.
The previous deal announced on June 23, 2011 was a cash settled derivative representing 33,560,989
shares at a price of $3.54 per share. Its termination with the signing of the new agreement on Feb 24, 2012
incurred commission costs paid to Deutsche Bank of $213,749 by Pennwin Pty Ltd, (the entity connected
to Packer dealings), for their role in unwinding the deal together with the payment of $570,811 in interest.
The Malaysian conglomerate Genting who is widely experienced with running Casinos has also established
a 9.2% stake following market raids in Jun 2012. <LINK>
7.1.4.3.1 CROWN (CWN) DEALINGS
On February 24, Crown announced to the market that it would acquire 10% of Echo through the
settlement of its derivative deal. The announcement sparked a flurry of activity on the market with 41.3
million shares trading and the share price closing at $4.30, up 13.2% on the day.
On March 2, Deutsche Bank AG and its related body corporates (The Deutsche Bank Group) announced
that it had become a 9.2% substantial holder through its activity as a stockbroker, stock borrower, stock
lender and in various other capacities. The development was obviously in support of the Crown derivative
deal as Deutsche Bank ceased as a substantial holder on March 8, coinciding with the settlement of the
derivative deal and with Crown the new substantial holder.
The complex level of disclosures between Crown, Deutsche and their clients add profoundly to the
mysteries of securities lending which is perhaps well beyond the comprehension of the average investor.
However all investors have to wear the impact that any such dealings can have on the market. However
market and the regulator seemingly took the convoluted dealings in their stride with the appearance that it
was a case of business as usual yet it was far from normal business. The press made no mention of how
the derivative deal actually delivered shares to Crown and who the entities were that ended up selling
their shares. The disclosures around the deal were not particularly transparent or informative as indicated
below in Section 7.1.4.3.6.
It is worthwhile reviewing what occurred late February 2012 and to assess how the simple act of buying
and selling can be made so complex and so obscure thanks to the machinations associated with modern
financing and strategic acquisitions.
The initial announcement by Deutsche Bank Group of a 9.2% stake was followed up by a raft of supporting
documentation as listed in the table that follows.
76

7.1.4.3.2 DEUTSCHE BANK SUBSTANTIAL SHAREHOLDER NOTICES:
DATE ANNOUNCEMENT LINK
24/02/2012 CWN:Crown Increases Interest in Echo Entertainment Group PDF
2/03/2012 Becoming a substantial holder in EGP by DB Group PDF
2/03/2012 Becoming a substantial holder in EGP by DB Group -Schedule 1 PDF
2/03/2012 Becoming a substantial holder in EGP by DB Group -Schedule 2 PDF
2/03/2012 Becoming a substantial holder in EGP by DB Group -Schedule 3 PDF
2/03/2012 Becoming a substantial holder in EGP by DB Group -Schedule 4 PDF
2/03/2012 Becoming a substantial holder in EGP by DB Group -Schedule 5 PDF
2/03/2012 Becoming a substantial holder in EGP by DB Group -Schedule 6 PDF
2/03/2012 Becoming a substantial holder in EGP by DB Group -Schedule 7 PDF
2/03/2012 Becoming a substantial holder in EGP by DB Group -Schedule 8 PDF
2/03/2012 Becoming a substantial holder in EGP by DB Group -Schedule 9 PDF
2/03/2012 Becoming a substantial holder in EGP by DB Group-Schedule 10 PDF
2/03/2012 Becoming a substantial holder in EGP by DB Group-Schedule 11 PDF
2/03/2012 Becoming a substantial holder in EGP by DB Group-Schedule 12 PDF
2/03/2012 Becoming a substantial holder in EGP by DB Group-Schedule 13 PDF
2/03/2012 Becoming a substantial holder in EGP by DB Group-Schedule 14 PDF
2/03/2012 Becoming a substantial holder in EGP by DB Group-Schedule 15 PDF
2/03/2012 Becoming a substantial holder in EGP by DB Group-Schedule 16 PDF
2/03/2012 Becoming a substantial holder in EGP by DB Group PDF
5/03/2012 Notification of Substantial Holding PDF
5/03/2012 Becoming a substantial holder from CWN PDF
5/03/2012 Becoming a substantial holder in EGP by DB Group-Schedule 17 PDF
5/03/2012 Supplementary Info from DBA PDF
5/03/2012 Notification of Substantial Shareholding PDF
7/03/2012 Ceasing to be a substantial holder in EGP by DB Group PDF

NOTE: The announcement on March 5 may also demonstrate faulty disclosure by Deutsche Bank. It mentions
We attach the Deutsche Bank AG and JP Morgan Chase Bank N.A. Securities lending agreement, referred to in
Section 3 of the notice which has now become available. However no such attachment was provided.

7.1.4.3.3 DEUTSCHE BANK DISCLOSURES: DETAILS CONCERNING RELEVANT INTERESTS

Holder of Relevant
Interest
Nature of Relevant Interest
Number of
Shares
Deutsche Bank AG and
each of its holding
companies in the
Deutsche Bank AG
Group
Deutsche Bank declares its interest as a stockbroker, stock borrower, stock
lender and in various other related capacities;
Part of the relevant interest represent:
8,300,000 shares as borrower pursuant to a securities lending transaction
with JP Morgan Chase Bank N.A as disclosed in Schedule 2,
20,000,000 million shares as borrower pursuant to a securities lending
transaction with National Australia Bank as disclosed in Schedule 3,
400,000 shares as lender pursuant to a securities lending transaction with
Commonwealth Bank of Australia as disclosed in Schedule 4
12,391 shares as lender pursuant to a securities lending transaction with
Merrill Lynch Equities Australia as disclosed in Schedule 5

Refer also to Schedule 1 for trading activity

46,281,009

Via
Derivatives
574,000

Deutsche Bank Group
announces a 9.2% stake
Deutsche Bank
documentaion
Crown announces its stake
received from Deutsche
Deutsche ceases as a
substantial holder
Crown announces its derivative
deal to secure a 10% stake
Estimated at 17.57
million shares as
per table 3.6.3.3.4
77

Holder of Relevant
Interest
Nature of Relevant Interest
Number of
Shares
Deutsche Bank AG and
each of its holding
companies in the
Deutsche Bank AG
Group
In its capacity as stockbroker and in various or other capacities.
This relevant interest represents
950,000 shares as borrower pursuant to a securities lending transaction
with JP Morgan Chase NA (which securities lending transaction is not
available at time of filing),
2,250,000 shares as borrower pursuant to a securities lending transaction
with Citibank as disclosed in schedule 6,
45,000 shares as borrower pursuant to a securities lending transaction
with HSBC Index Tracker Investment as disclosed in Schedule 7,
1,100,000 shares as borrower pursuant to a securities lending transaction
with ABN Amro, Mellon Bank as disclosed in Schedule 8,
1,350,000 shares as borrower pursuant to a securities lending transaction
with The Northern Trust Company as disclosed in Schedule 9, and 116,500
shares as borrower pursuant to securities lending transaction with the
Sumitomo Trust & Banking Company as disclosed in Schedule 10, and
270,000 shares as borrower pursuant to a lending transaction with West
Midlands Metro Authorities Pension Fund, as disclosed in Schedule 11

6,081,500
Deutsche Bank
Securities Inc. and each
of its holding
companies in the
Deutsche Bank AG
Group
In its capacity as stockbroker and in various or other capacities.
900,000 shares as borrower pursuant to a securities lending transaction
with Boston Global Advisors as disclosed in Schedule 12,
1,800,000 shares as borrower pursuant to a securities lending transaction
with Barclays Global Investors as disclosed in Schedule 13
1,640,000 shares as borrower pursuant to a securities lending transaction
with JP Morgan Chase Bank NA Investors as disclosed in Schedule 14
2,500,000 shares as borrower pursuant to a securities lending transaction
with Citibank as disclosed in Schedule 15,
200,000 shares as borrower pursuant to a securities lending transaction
with Northern Trust Company which securities lending agreement is not
available at the time of filing,
3,200,000 shares as borrower pursuant to a securities lending transaction
with State Street bank as disclosed in Schedule 16,
10,240,000

Holder of Relevant
Interest
Nature of Relevant Interest
Number of
Shares
Abbey Life or other
foreign members of the
group and each of its
holding companies in
the Deutsche Bank
Group
In its capacity as investment manager and various other capacities.
Each holding company of the relevant foreign member of the Deutsche Bank
group including Deutsche Bank Group is deemed to have the same relevant
interest
93,230
Deutsche Investment
Management Americas
Inc. and each of its
holding companies in
the Deutsche Bank
Group
In its capacity as investment manager and various other capacities.
Each holding company of the relevant foreign member of the Deutsche Bank
group including Deutsche Bank Group is deemed to have the same relevant
interest
16,897
Deutsche Asset
Management and each
of its holding
companies in the
Deutsche Bank Group
In its capacity as investment manager and various other capacities.
Each holding company of the relevant foreign member of the Deutsche Bank
group including Deutsche Bank Group is deemed to have the same relevant
interest
14,450
Grand Total 63,301,086
78

7.1.4.3.4 SUMMARY OF HOLDINGS:
The numbers of shares borrowed (and lent) in relation to the various securities lending agreements
mentioned in the substantial notice were included in Schedule 1 of the announcement. The details of each
agreement have been summarized in the table below. The various types of securities lending agreements
have been referred to via the following abbreviations.
AMSLA: Australian Master Securities Lending agreement OSLA:Overseas Securities Lending Agreement
GMSLA: Global Master Securities Lending Agreement SLA: Securities Lending Agreement
MRA: Master Repurchase Agreement
Re: Securities Lending Agreements
Reference Type Cover Date Borrower Lender Signed Page Shares
Schedule 2 AMSLA Feb 3, 2004 JP Morgan Chase Deutsche Not Dated 8,300,000
Schedule 3 AMSLA March 13, 2008 Deutsche National bank March 1, 2007 20,000,000
Schedule 4 AMSLA March 13, 2008 Deutsche Commonwealth Not Dated 400,000
Schedule 5 AMSLA Oct 4, 2011 Deutsche Merrill Lynch Not Dated 12,391
Schedule 6 GMSLA Oct 14, 2011 Citibank Deutsche Oct 14, 2011 2,250,000
Schedule 7 OSLA Oct 1, 1997 Midland bank Bankers Trust Date Obscured 45,000
Schedule 8 GMSLA March 6, 2003 Deutsche ABN Amro Not Dated 1,100,000
Schedule 9 OSLA Oct 11, 2007 Deutsche Northern Trust Co Not Dated 1,550,000
Schedule 10 OSLA April 1, 2004 Deutsche Sumitomo Not Dated 116,500
Schedule 11 OSLA March 24, 2004 HSBC Morgan Grenfell Not Dated 270,000
Schedule 12 SLA Jan 19, 2001 Goldman Sachs Deutsche Bank Not Dated 900,000
Schedule 13 MSLA Jul 18, 2005 Barclays Deutsche Bank July 18, 2005 1,800,000
Schedule 14 MRA Jan 12, 2001 Chase Deutsche Bank Jul 12, 2001 1,640,000
Schedule 15 OSLA Aug 12, 2005 Deutsche Citibank Aug 12, 2005 2,500,000
Schedule 16 SLA Jul 5, 1989 State Street Deutsche July 7 1998 3,200,000
Schedule 17 OSLA Feb 24, 1997 Chase Deutsche Not Dated 950,000
Other Holdings Sub Total
45,033,891
Abbey Life

93,230
Deutsche Investment Management Americas Inc.

16,897
Deutsche Asset Management

14,450
Derivative Interests

574,000



Sub Total 698,577
Total Shares Claimed in Substantial Holder Notice


63,301,086



Required Balance from On-Market Buying (Estimate)

17,568,618


Deutsche Bank appears as both borrower and lender in the various securities lending documentation, yet it
appears that the shares associated with securities lending form part of the holdings transferred to Crown as part
of the derivative deal. Normally, borrowed shares have an obligation to be returned to the lender and so they
wouldnt be available to be sold to Crown unless of course Crown was to purchase them as short sales. But then
Deutsche would need to replace them from somewhere else and return them to their owner(s). Also it is noted
that the shares that have been lent out by Deutsche Bank have also been included in the substantial shareholder
notice. The lender would have title to those shares not Deutsche Bank even though there would be an obligation
for them to be returned to Deutsche Bank. Deutsche would be holding collateral corresponding to loaned shares.
Apart from the above, what is particularly confusing is when the securities lending agreements were actually
drawn up. All but two (i.e. Schedules 5 & 6) predate when Echo Entertainment was actually formed. The cover
dates of most documents go back to the 1990s or the early 2000s. Given that EGP only commenced trading in
June of 2011, it would appear that the structure of agreements have been in place for a very long time and it is a
case of business as usual when shares are required in a company that has been targeted such as EGP. While fund
managers conveniently make shares under management available to colleagues within the industry there can be
serious ethical issues when managed fund holdings are devalued through the effect of stock lending. The central
issue is one of fund managers and their affiliates benefitting at the expense of their clients.

79

7.1.4.3.5.1 SUMMARY OF DEUTSCHE BANK TRADING:
The trading that Deutsche Bank was associated with in the 4 month period preceding the substantial notice
was provided as a separate attachment which was referred to as Schedule 1. It is available from the
following (LINK) . Allowing for the numbers of shares quoted for securities lending agreements and shares
held by other affiliates, it is estimated that 17,568,618 shares of the substantial holding came from the
Groups buying activities (Refer Table 7.1.4.3.4).
However the buying listed in Schedule 1 and which covered the period from Nov 2, 2011 to Mar 1, 2012
amounted to far more than 17.569 million shares. The Deutsche Bank trading records actually show
189,309,714 shares acquired during the 4 month period and surprisingly there werent any sales nor were
there any transfers of shares out of UBS holdings from off-market dealings.
At face value the substantial notice appears incomplete, a problem in itself from a disclosure perspective.
Even if a lot of the buying was used for other purposes such as short covering, the off-market transfers out
of Deutsche Bank accounts as loans were repaid ought to have been dislosed. Certainly substantial buying
or borrowing appears to have been done off-market and yet that has been included. Another scenario that
would allow for missing sales is that the selling may have occurred prior to the 4 month disclosure period
in which case it would point to massive levels of short selling not disclosed and not evident in official data.
The situation requires clarifying, especially when total ASX buying in EGP for the entire period of
196,073,100 shares only just exceeded the number of shares acquired by Deutsche Bank in its own right
i.e; 189,309,714 shares as disclosed in the notice). Deutsche Bank certainly werent responsible for nearly
all of EGPs trading.
The table below summarizes the Deutsche Bank Buying for Echo Entertainment over the 4 month period
and compares all ASX buying for EGP as well. The buying by Deutsche Bank as a percentage of all buying
taking place is also included. Obvious anomalies in the data have been highlighted.
Date
Deutsche
Buys
Purchase
Amount
Average
Price
All ASX
Buying
Deutsche
Buying %
2/11/2011 207,839 $770,540.72 $3.71

2,075,900 10.0%
3/11/2011 889,589 $3,362,357.88 $3.78

2,564,400 34.7%
4/11/2011 1,332,397 $5,136,940.10 $3.86

2,405,400 55.4%
7/11/2011 181,658 $701,895.94 $3.86

718,100 25.3%
8/11/2011 58,440 $222,824.97 $3.81

2,029,900 2.9%
9/11/2011 168,261 $643,763.49 $3.83

1,332,500 12.6%
10/11/2011 126,102 $475,938.94 $3.77

1,039,600 12.1%
11/11/2011 249,663 $959,973.85 $3.85

1,797,900 13.9%
14/11/2011 197,221 $766,359.32 $3.89

734,800 26.8%
15/11/2011 81,005 $304,932.66 $3.76

1,932,500 4.2%
16/11/2011 108,277 $408,332.48 $3.77

1,323,800 8.2%
17/11/2011 126,073 $474,473.33 $3.76

858,100 14.7%
18/11/2011 165,087 $614,148.57 $3.72

797,300 20.7%
21/11/2011 137,993 $515,561.19 $3.74

863,500 16.0%
22/11/2011 76,652 $285,050.23 $3.72

1,059,400 7.2%
23/11/2011 170,730 $623,787.45 $3.65

1,255,700 13.6%
24/11/2011 105,079 $380,869.59 $3.62

1,433,100 7.3%
25/11/2011 132,438 $476,818.02 $3.60

852,600 15.5%
28/11/2011 32,207 $116,382.82 $3.61

715,900 4.5%
29/11/2011 103,958 $373,574.06 $3.59

966,800 10.8%
30/11/2011 60,124 $218,806.01 $3.64

2,243,400 2.7%
1/12/2011 271,966 $1,000,154.42 $3.68

1,374,800 19.8%
2/12/2011 184,285 $692,591.83 $3.76

1,619,800 11.4%
5/12/2011 148,846 $567,206.44 $3.81

1,447,500 10.3%
6/12/2011 119,952 $456,697.73 $3.81

1,859,800 6.4%
7/12/2011 77,144 $285,152.18 $3.70

1,992,200 3.9%
8/12/2011 102,234 $376,645.44 $3.68

2,167,400 4.7%
9/12/2011 65,290 $242,085.21 $3.71

1,744,900 3.7%
12/12/2011 51,302 $192,135.61 $3.75

1,054,500 4.9%
80

Date
Deutsche
Buys
Purchase
Amount
Average
Price
All ASX
Buying
Deutsche
Buying %
13/12/2011 66,373 $244,808.91 $3.69

1,318,500 5.0%
14/12/2011 167,563 $619,679.77 $3.70

1,060,600 15.8%
15/12/2011 85,088 $312,785.66 $3.68

3,047,000 2.8%
16/12/2011 126,391 $464,411.22 $3.67

2,720,100 4.6%
19/12/2011 94,585 $349,987.97 $3.70

1,314,800 7.2%
20/12/2011 57,660 $204,594.90 $3.55

1,398,700 4.1%
21/12/2011 589,738 $2,118,939.50 $3.59

1,884,900 31.3%
22/12/2011 70,613 $250,746.72 $3.55

2,365,600 3.0%
23/12/2011 131,425 $472,188.05 $3.59

879,900 14.9%
28/12/2011 40,417 $147,473.11 $3.65

731,300 5.5%
29/12/2011 12,088 $43,240.77 $3.58

655,000 1.8%
30/12/2011 81,491 $292,536.64 $3.59

364,800 22.3%
31/12/2011 44,670,458 $160,366,944.22 $3.59

0 #DIV/0!
3/01/2012 57,409 $206,433.23 $3.60

415,800 13.8%
4/01/2012 136,967 $504,035.26 $3.68

1,184,400 11.6%
5/01/2012 60,208 $215,571.62 $3.58

1,450,700 4.2%
6/01/2012 228,837 $823,355.49 $3.60

1,422,800 16.1%
9/01/2012 231,424 $833,742.53 $3.60

694,100 33.3%
10/01/2012 4,124,816 $15,091,025.28 $3.66

3,573,900 115.4%
11/01/2012 126,870 $468,056.48 $3.69

823,100 15.4%
12/01/2012 88,287 $327,081.00 $3.70

1,550,700 5.7%
13/01/2012 54,487 $202,634.56 $3.72

822,700 6.6%
16/01/2012 108,659 $400,114.73 $3.68

977,400 11.1%
17/01/2012 163,184 $601,673.06 $3.69

745,700 21.9%
18/01/2012 117,571 $438,238.14 $3.73

711,800 16.5%
19/01/2012 275,295 $1,026,023.68 $3.73

1,366,900 20.1%
20/01/2012 215,249 $780,727.27 $3.63

3,666,800 5.9%
23/01/2012 119,317 $434,452.85 $3.64

849,000 14.1%
24/01/2012 74,878 $273,653.31 $3.65

870,700 8.6%
25/01/2012 85,524 $310,674.63 $3.63

1,766,100 4.8%
27/01/2012 135,673 $491,974.24 $3.63

1,395,500 9.7%
30/01/2012 61,477 $222,212.31 $3.61

849,900 7.2%
31/01/2012 279,690 $1,020,819.61 $3.65

2,467,000 11.3%
1/02/2012 79,012 $286,683.09 $3.63

1,073,100 7.4%
2/02/2012 163,881 $611,167.31 $3.73

5,344,700 3.1%
3/02/2012 501,112 $1,826,711.46 $3.65

3,566,700 14.0%
6/02/2012 135,371 $497,139.56 $3.67

2,066,100 6.6%
7/02/2012 62,606 $228,962.58 $3.66

1,378,200 4.5%
8/02/2012 162,103 $594,049.69 $3.66

2,862,400 5.7%
9/02/2012 151,643 $557,577.83 $3.68

1,840,400 8.2%
10/02/2012 159,802 $585,655.80 $3.66

1,058,600 15.1%
13/02/2012 419,207 $1,509,931.33 $3.60

3,252,900 12.9%
14/02/2012 941,461 $3,346,857.43 $3.55

5,114,600 18.4%
15/02/2012 240,262 $862,701.99 $3.59

1,327,500 18.1%
16/02/2012 846,816 $2,948,243.23 $3.48

4,237,200 20.0%
17/02/2012 287,638 $1,034,759.41 $3.60

4,279,500 6.7%
20/02/2012 588,985 $2,131,487.05 $3.62

2,350,800 25.1%
21/02/2012 279,675 $1,020,512.30 $3.65

1,961,700 14.3%
22/02/2012 3,358,633 $12,512,578.68 $3.73

3,375,800 99.5%
23/02/2012 1,903,915 $7,122,020.17 $3.74

2,346,900 81.1%
24/02/2012 117,407,754 $424,270,177.84 $3.61

41,362,200 283.9%
27/02/2012 935,938 $4,007,973.87 $4.28

5,801,200 16.1%
28/02/2012 1,122,849 $4,874,615.56 $4.34

6,356,000 17.7%
29/02/2012 380,453 $1,636,276.52 $4.30

4,652,200 8.2%
1/03/2012 509,074 $2,182,056.48 $4.29

1,799,000 28.3%
Summary 189,309,714 $686,854,976.38 $3.63 195,015,400


A very large tranche
of shares purchased
on a Saturday
The number of
shares acquired
by DB exceeded
the number of
shares traded on
the market.
Shares acquired
by Deutsche
exceeded the
number traded
on the market
by a factor of 2.8
times

81

7.1.4.3.5.2 ANOMALOUS TRADES
The trading details where obvious anomalies have occurred (presumably due to extensive off-market
activity) are as follows:
Dec 31, 2011: where a large parcel of 33.56 million shares was purchased, along with two smaller tranches
and 49 much smaller transactions amounting to 1.7 million shares. All purchases were put through at $3.59

31/12/2011 33,560,989 $120,483,950.51
$3.59
31/12/2011 7,350,000 $26,386,500.00 $3.59
31/12/2011 2,000,000 $7,180,000.00 $3.59
31/12/2011 1,759,469 $6,316,494
$3.59


Jan 10, 2012: where one large purchase of 4 million shares along with 9 smaller purchases occurred. All up
purchases totalled 4.125 million shares whereas only 3.57 million were traded on the market.
10/01/2012 4,000,000 $14,640,000.00 $3.66
10/01/2012 124,816 $451,025.28 $3.61

Feb 24, 2012: Crown announced their derivative purchase for 10% of Echo Entertainment resulting in 41.36
million shares trading in the market. Yet the Deutsche Bank Group is on record as purchasing 117.41
million shares. The substantial shareholder notice a few days later only disclosed control over 63 million
shares leaving doubts about missing purchases totalling around 43 million shares.
The purchase details are as follows.
24/02/2012 67,121,978 $237,497,694.76
$3.54
24/02/2012 33,560,989 $118,748,847.38 $3.54
24/02/2012 7,000,000 $27,650,000.00 $3.95
24/02/2012 6,077,992 $25,812,760.10
$4.25
24/02/2012 3,300,307 $13,087,138.56 $3.97
24/02/2012 346,488 $1,473,737.04 $4.25
Totals 117,407,754 $424,270,177.84 $3.61

In an attempt to understand the derivative deal put in place by Crown, it would be useful to establish
where the large purchases on Saturday, December 31, 2011 (i.e. 44,670,458 shares) fitted into the scheme
of things and why they didnt trigger a change in substantial shareholder notice by Deutsche Bank. The
single tranche of 33.56 million shares represented 4.9% of the register in its own right and total purchases
by the Deutsche Bank Group on Dec 31, 2011 represented around 6.5% of the register.
Similarly the two purchases on Dec 31, 2011 and Feb 24, 2012 each for 33,560,989 shares together with
the additional large purchase of 67,121,978 shares on Feb 24, 2011, all require clarification. The seller(s) of
those shares remain a mystery and perhaps should have lodged a ceasing to be a substantial shareholder
notice. Curiously, the large tranche of 67.12 million shares also happens to be exactly double the size of
the two smaller 33.56 million tranches. The circumstances surrounding such large transfers could well have
had an influence on the integrity of the market at that time particularly with large deals pending.
Comprises 49 separate
transactions
Comprises 51 separate
buy transactions
The seller of these shares and the circumstances
surrounding the sales are of particular interest.
The 3 large tranches were purchased on a Saturday
Comprises 9 separate
transactions
82

7.1.4.3.6 DERIVATIVE ISSUES:
Crown announced the acquisition of a major stake in Echo through a derivative deal with Deutsche Bank
yet the circumstances of where the shares actually came from remain a mystery. The terminology
accompanying the capped forward derivative is likely to be far above the levels of comprehension of most
market participants as per the summary included below.

Importantly, the Crown announcement referred to a proposal and an expectation with nothing actually
entered into at the time of the disclosure, nor has their been any confirmation of what actually took place.

However, in essence, the capped forward derivative was expected to be settled by the payment of $253.9
million by Penwin (a holding controlled by James Packer) in exchange for the delivery of 68.8 million shares.
The derivative documentation also referred to the following Cap Table
Cap Knock-out Price Valuation Date Participation Rate
4.2 3.85 27-Apr-12 25%
4.25 3.8 31-May-12 25%
4.3 3.75 29-Jun-12 25%
4.35 3.7 31-Jul-12 25%
83

7.1.4.3.7 SUMMARY OF DEUTSCHE BANK SUBSTANTIAL NOTICES:
Deutsche Bank became a substantial shareholder on March 2, 2012 and ceased from being a substantial
holder on March 7. The circumstances of Deutsche Bank becoming and then ceasing as a major holder are
as follows.



























Acqusitions in the 4 month period covered by the initial
substantial holder notice totalled 189.3 million shares.
The table lists the larger transactions and aggregates
the remaining purchases.
Date Type Number Avg Price Amount
24/02/2012 B 67,121,978 $3.54 237,497,694.76
31/12/2011 B 33,560,989 $3.59 120,483,950.51
24/02/2012 B 33,560,989 $3.54 118,748,847.38
31/12/2011 B 7,350,000 $3.59 26,386,500.00
24/02/2012 B 7,000,000 $3.95 27,650,000.00
24/02/2012 B 6,077,992 $4.25 25,812,760.10
10/01/2012 B 4,000,000 $3.66 14,640,000.00
24/02/2012 B 3,300,307 $3.97 13,087,138.56
31/12/2011 B 2,000,000 $3.59 7,180,000.00
4 Months B 25,337,583 $3.76 95,368,528.99



Acquisitions also included 44.6 million shares associated
with securities lending agreements by Deutsche Bank.
Partner to Agreement Number of Shares
National 20,000,000
JP Morgan 8,300,000
Citi Bank 2,000,000
The Northern Trust 1,350,000
NY Mellon 1,100,000
JP Morgan 950,000
HSBC 45,000
Citibank 250,000
Sumitomo Trust 116,500
West Midlands PF 270,000
Citibank 2,500,000
Barclays 1,800,000
State Street 1,200,000
Boston Global 900,000
JP Morgan 460,000
The Northern Trust 200,000
State Street 2,000,000
JP Morgan 1,180,000
Total 44,621,500



Comprises 1,617 separate buys with an
average parcel size of 15,670 shares

The period covered by the ceasing notice following the
becoming a substantial holder notice on March 2, 2012
included the days March 2, 3 and 6.
Trading in EGP on the market for the 3 days was as
follows
Day Volume Closing
2-Mar-12 2,669,800 $4.34
5-Mar-12 4,255,300 $4.29
6-Mar-12 9,894,400 $4.26

The notice referred to the following buys and sells by
Deutsche Bank affiliates over the 3 days.
Day Sells Buys Net
2-Mar-12 150,390 135,239 -15,151
5-Mar-12 137,218 177,064 39,846
6-Mar-12 41,843,906 9,064,650 -32,779,256
Totals 42,131,514 9,376,953 -32,754,561

The major transactions were as follows.
6-Mar-12 Buy 8,850,000 $4.26 37,701,000
6-Mar-12 Sell 41,699,729 $3.73 155,539,969

The 41.7 million transaction was declared as being part
of the Pennwin (Packer) derivative deal. The 8.85 million
transaction looks to have occurred off-market as well.
The balance of the 68.8 million shares transferred to
Pennwin looks to have somehow involved the securities
associated with the lending agreements. The situation is
quite vague but suggests additional purchase
agreements concerning shares loaned out over and
above the stock lending agreements.
A question remains however about how those shares
could be retrieved and made available to Pennwin
without a great deal of co-operation by all parties both
on and off-market. There may also be implications for
the way funds under management have been involved.





INITIAL NOTICE-March 2 CEASING NOTICE-March 7
Of particular interest is the fact that the derivative agreement that was terminated referenced a 33.6 million
parcel of shares (i.e. 33,560,989 shares as per Sect 6.6.3.2). The same sized parcel showed up in Deutsche
Bank acquisitions on Dec 31, 2011 and again on Feb 24, 2012 as referenced above. Also, the acquisition of
67,121,978 shares on Feb 24 is exactly 2 times 33,560,989. Further, the 117.41 million acquisitions of shares
by Deutsche Bank on Feb 24 ought to have triggered a ceasing to be a substantial shareholder by the entities
that made them available to Deutsche Bank. That didnt seem to occur.

It seems that the 33,560,989 parcel of shares has had an important and ongoing presence in the market.
There may also have been a need to exercise a degree of control over the market in order to keep any
derivative and/or short position exposures contained which if true would again raise market integrity issues.
84

7.1.4.3.8 NATIONAL BANK GROUP (NAB) SUBSTANTIAL SHAREHOLDER NOTICES
National Bank and its Affiliates have featured prominently as a substantial holder in Echo Entertainment
Group with regular announcements prompted mainly by the extent of securities lending undertaken within
the group. The situation is similar to that reported for Billabong where share transfers associated with
stock lending and stock borrowing dwarf the amount of buying and selling taking place by NAB affiliates.
Substantial shareholder notices by the NAB Group in relation to Echo for 2011 and 2012 were as follows.
Date NOTICE HOLDING Link
27/10/2011 Becoming a substantial holder from NAB 5.13% PDF
9/11/2011 Ceasing to be a substantial holder from NAB 4.46% PDF
29/11/2011 Becoming a substantial holder from NAB 5.03% PDF
31/01/2012 Ceasing to be a substantial holder from NAB 4.79% PDF
6/03/2012 Becoming a substantial holder from NAB 5.35% PDF
9/03/2012 Change in substantial holding from NAB 8.22% PDF
14/03/2012 Change in substantial holding from NAB 6.60% PDF
13/04/2012 Change in substantial holding from NAB 7.74% PDF
31/05/2012 Change in substantial holding from NAB 6.46% PDF
12/06/2012 Change in substantial holding from NAB 5.44% PDF
13/06/2012 Ceasing to be a substantial holder from NAB 4.82% PDF
15/06/2012 Becoming a substantial holder from NAB 6.03% PDF
22/06/2012 Ceasing to be a substantial holder from NAB 2.89% PDF
20/07/2012 Becoming a substantial holder from NAB 5.13% PDF
25/07/2012 Ceasing to be a substantial holder from NAB 4.96% PDF
5/10/2012 Becoming a substantial holder from NAB 5.01% PDF
10/10/2012 Ceasing to be a substantial holder from NAB 4.86% PDF
17/10/2012 Becoming a substantial holder- NAB 5.00% PDF
24/10/2012 Ceasing to be a substantial holder from NAB 4.97% PDF
26/10/2012 Becoming a substantial holder from NAB 5.19% PDF
23/11/2012 Change in substantial holding from NAB 6.65% PDF
28/12/2012 Change in substantial holding from NAB 7.66% PDF

An overall summary of trading by National Bank affiliates for 2011 and 2012 is set out below with the
particular NAB account associated with securities lending highlighted by shading.
NAB Affiliate OFF ON NET
Antares Managed
Investments
2,622,055 19,519,563 16,897,508
Aviva Australia 2,600 50,462 47,862
MLC Investments Limited 14,963,475 19,415,110 4,451,635
National Australia Bank Ltd 212,577,611 216,747,267 4,169,656
MLC Limited 195,079 501 -194,578
MLC Wealth 1,115,912 660,358 -455,554
National Australia Bank 1,658,954 19,259,736 17,600,782
Totals 213,610,899 216,504,531 2,893,632
A comparison of buying and selling by NAB Group affiliates compared to share flows associated with
securities lending is as follows.
OFF ON NET
Trading 20,558,075 58,905,730 38,347,655
Lending 212,577,611 216,747,267 4,169,656
Totals 233,135,686 275,652,997 42,517,311
Lending % 91.2% 78.6%

Reductions in lending represent
91.2% of all share movements out of
accounts, and increases in lending
represent 78.6% of all share
movements into NAB accounts.
The large volumes of transactions unaccounted for by Deutsche Bank, lending agreements that were drawn up well before
Echo was formed, obscure derivative dealings, huge volumes of off-market dealings and the spectre of large volumes of
stock lending overhanging the market bestow little confidence in the integrity of trading regarding EGP. The dealings also
demonstrate the degree of non-transparency that exists on the ASX which in turn casts suspicion about trading
irregularities. On balance, any irregularities are more likely to align with market manipulation than ethical trading practices.
NAB Securities Lending Clients
AUSTSAFE PTY LTD, CARE SUPER , GOVERNMENT EMPLOYEES
SUPERANNUATION, MOTOR TRADES AUSTRALIA, SUPER,
SUNSUPER, TELSTRA SUPER, UNISUPER, UNITED SUPER,
VICSUPER, AVSUPER PTY LTD
Securities Lending Counterparties
RBS EQUITIES, DEUTSCHE SECURITIES, CREDIT SUISSE, INSTINET
AUSTRALIA, JP MORGAN SECURITIES, MACQUARIE BANK,
MERRILL LYNCH EQUITIES, MORGAN STANLEY & CO, EQ, UBS
SECURITIES, RBS EQUITIES
85

7.1.4.3.9 SHORT SELLING and OPEN SHORT POSITION TRENDS
The following table collates daily short selling data (from the ASX) with open short position data (from
ASIC) and estimates for daily short covering purchases. Estimates for daily short covering purchases that
result in negative values, values that exceed ASX buying or values that represent too large a percentage of
daily buying are all regarded as anomalous and suggest off-market transfers taking place in addition to ASX
buying and selling activity.
2012
Total ASX
Sales
ASX Short
Sales
Shorts %
ASIC Open
Positions
Change to Open
Short Positions
Estimated
Short Covers
Covers as a % of
ASX Volumes
10-Feb-12 1,058,600 234,834 22.2% 5,900,966 19,712 215,122 20.3%
13-Feb-12 3,252,900 50,175 1.5% 5,956,427 55,461 -5,286 -0.2%
14-Feb-12 5,114,600 423,125 8.3% 8,082,118 2,125,691 -1,702,566 -33.3%
15-Feb-12 1,327,500 157,420 11.9% 6,195,486 -1,886,632 2,044,052 154.0%
16-Feb-12 4,237,200 775,141 18.3% 6,082,707 -112,779 887,920 21.0%
17-Feb-12 4,279,500 1,805,758 42.2% 6,067,570 -15,137 1,820,895 42.5%
20-Feb-12 2,350,800 178,499 7.6% 6,119,087 51,517 126,982 5.4%
21-Feb-12 1,961,700 185,878 9.5% 6,163,188 44,101 141,777 7.2%
22-Feb-12 3,375,800 196,479 5.8% 6,544,396 381,208 -184,729 -5.5%
23-Feb-12 2,346,900 217,204 9.3% 6,032,066 -512,330 729,534 31.1%
24-Feb-12 41,362,200 2,981,819 7.2% 5,438,239 -593,827 3,575,646 8.6%
27-Feb-12 5,801,200 753,087 13.0% 6,608,773 1,170,534 -417,447 -7.2%
28-Feb-12 6,356,000 1,524,665 24.0% 5,505,402 -1,103,371 2,628,036 41.3%
29-Feb-12 4,652,200 1,369,325 29.4% 5,633,125 127,723 1,241,602 26.7%
1-Mar-12 1,799,000 242,382 13.5% 5,653,130 20,005 222,377 12.4%
2-Mar-12 2,669,800 211,463 7.9% 4,462,813 -1,190,317 1,401,780 52.5%
5-Mar-12 4,255,300 160,678 3.8% 6,256,464 1,793,651 -1,632,973 -38.4%
6-Mar-12 9,894,400 750,930 7.6% 48,132,371 41,875,907 -41,124,977 -415.6%
7-Mar-12 3,218,600 101,342 3.1% 48,683,974 551,603 -450,261 -14.0%
8-Mar-12 6,303,000 678,360 10.8% 47,560,759 -1,123,215 1,801,575 28.6%
9-Mar-12 3,901,700 1,019,262 26.1% 47,698,009 137,250 882,012 22.6%

The extent of anomalies (shaded data) raises integrity concerns with so much off-market activity
accompanying daily trading and therefore avoiding price discovery.
Feb 24 is of particular concern as pointed out in Sect 7.1.4.3.5.1, not from the point of view of anomalous
short covering estimates which were comparatively low at 8.6% of daily volumes, but because of the
volumes of transactions declared by Deutsche Bank compared to the total amount of ASX buying.
i.e. 117,407,754 purchases by Deutsche Bank compared to 41,362,200 shares actually traded on-market
require proper clarifications.

7.1.4.3.10 OPEN SHORT CHANGES COMPARED TO CHANGES TO NET BORROWING & NET LENDING DATA
The following table contrasts open short changes with daily adjustments to net borrowing and to net
lending data. Logically, there is an expectation that large changes to open short data ought to be
accompanied by commensurate changes to net borrowing and net lending data. Lending and borrowing
net changes that dont reflect changes to open positions have therefore been highlighted by shading.
Lending and borrowing data that is significantly different to changes to open short data but where the
changes to open shorts are only minor have also been highlighted by shading. Such data highlights lending
and borrowing activity that is separate to short selling or short covering activity such as occurs for example
in the facilitation of settlements from time to time using borrowed shares.
86

Wide variances in data that ought to show a degree of correspondence are again the prominent features of
daily trading data.
2011
Changes to
Open Positions
Gross
Borrowings
Change
Net
Borrowings
Change to Net
Borrowings
Gross
Lending
Change
Net
Lending
Change to
Net Loans
20-Feb 51,517 18,392,650 486,310 4,645,704 422,162 44,527,068 -1,312,776 30,780,1
22
-1,376,924
21-Feb 44,101 19,715,040 1,322,390 4,667,572 21,868 44,686,238 159,170 29,638,7
70
-1,141,352
22-Feb 381,208 19,603,431 -111,609 4,898,265 230,693 44,563,821 -122,417 29,858,6
55
219,885
23-Feb -512,330 18,997,154 -606,277 4,480,318 -417,947 46,880,715 2,316,894 32,363,8
79
2,505,224
24-Feb -593,827 19,091,312 94,158 4,731,771 251,453 44,815,103 -2,065,612 30,455,5
62
-1,908,317
27-Feb 1,170,534 19,611,535 520,223 4,870,488 138,717 47,265,736 2,450,633 32,524,6
89
2,069,127
28-Feb -1,103,371 19,343,148 -268,387 4,622,674 -247,814 46,007,342 -1,258,394 31,286,8
68
-1,237,821
29-Feb 127,723 17,203,434 -2,139,714 4,246,773 -375,901 21,559,334 -24,448,008 8,602,67
3
-22,684,195
1-Mar 20,005 33,014,661 15,811,227 7,680,346 3,433,573 36,106,988 14,547,654 10,772,6
73
2,170,000
2-Mar -1,190,317 35,456,184 2,441,523 15,479,877 7,799,531 31,100,423 -5,006,565 11,124,1
16
351,443
5-Mar 1,793,651 37,873,252 2,417,068 16,684,439 1,204,562 31,020,795 -79,628 9,831,98
2
-1,292,134
6-Mar 41,875,907 68,591,978 30,718,726 46,708,732 30,024,293 41,415,919 10,395,124 19,532,6
73
9,700,691
7-Mar 551,603 62,689,759 -5,902,219 48,367,982 1,659,250 54,597,943 13,182,024 40,276,1
66
20,743,493
8-Mar -1,123,215 64,253,894 1,564,135 51,194,604 2,826,622 48,335,456 -6,262,487 35,276,1
66
-5,000,000
9-Mar 137,250 52,987,149 -11,266,745 48,162,153 -3,032,451 40,143,162 -8,192,294 35,318,1
66
42,000
12-Mar 1,284,275 61,402,058 8,414,909 48,325,731 163,578 48,394,493 8,251,331 35,318,1
66
0
13-Mar 2,262,343 61,891,798 489,740 49,789,064 1,463,333 44,830,491 -3,564,002 32,727,7
57
-2,590,409

The patterns in trading data in no way inspire confidence that the market has been orderly and fair while
intense corporate positioning has been taking place. Not only are obscure, strategic dealings a feature of
the trading taking place in Echo Entertainment, the corporate manoeuvring has been presented in the
media as a feud between James Packer interests and Echo management. Examples of media commentary
are included below.
<LINK>: Packer declares war on Echo
James Packer has taken his campaign against Echo Entertainment chairman John Story directly to his
rivals shareholders, with the billionaire Crown chairman calling for an extraordinary general meeting to
oust the veteran director.

<LINK>: Packers Echo of arrogance
The sheer arrogance of James Packer's attack on Echo Entertainment puts the spotlight firmly on the big
institutional shareholders to see if, yet again, they will roll over in the face of powerful "friends" wanting
control without paying a premium.

<LINK>: How Packer won the Echo battle, and could lose the war
The chair of Echo Entertainment, John Story, resigned on Friday after a prolonged public campaign by
James Packer, the chair of Crown Casino, to unseat him. Packers campaign has been personal, unrelenting,
aggressive and successful. Packers recent move to call an extraordinary general meeting brought to a head
months of destabilisation of Echo; he proposed that Story be replaced at the EGM by former Victorian
Premier, Jeff Kennett.

7.1.4.3.11 CONCLUDING COMMENT
The Deutsche Bank/ Crown dealings clearly demonstrate the complex and highly sophisticated professional
juggling within intricate networks that can occur when a powerful financial entity decides to acquire a
major stake in a public company.
Such dealings necessarily involve a high degree of co-operation where the fine line between professional
co-operation and share price manipulation becomes a concern. The dealings also highlight a lack of
transparency and the possibility of clients in managed funds being conveniently sold out by their fund
managers while they facilitate the big picture corporate agendas of their associates.
There is also the issue of attempts to control or manage the share price while complex dealings are set up
and implemented. The latter may in fact require a forensic examination of all dealings by the regulator.