A $20 billion industry has been built around broking houses who arrange and sometimes keep the shortfalls of share sales in Australia, but participants say they have been left reeling by the prospect that the job they have considered routine for decades could open them up to criminal charges.

The prosecution of six bankers and their employers over a troubled 2015 sale of A$2.5 billion (£1.4 billion) of shares in Australia and New Zealand Bank hasn't had its first court date yet. Brokers, though, said they already fear it will prevent them from sharing risk by jointly underwriting offerings and means they may turn down the chance to help in some capital raisings.

It comes at a bad time for the nation's finance industry, which is already suffering because of an embarrassing public inquiry into its conduct. That probe has already led to some high-profile departures from top banks and fund groups and a slump in share prices in the sector.

The Australian Competition and Consumer Commission (ACCC)

has not disclosed the exact charges against those allegedly involved in the cartel or the full circumstances behind them.

Citi, though, has said it, Deutsche Bank and their client, ANZ, plus employees and former employees of all three, are being accused of breaking antitrust law by co-ordinating a selldown of shares. The banks owned the ANZ stock because they had acquired it as underwriters when investors failed to buy the entire issue.

If the case proceeds "it just completely changes the way all our capital markets operate and have always operated," said the chairman of one mid-tier broker who asked not to be named from fear of legal repercussions.

He said that it could hamper companies' efforts to raise money and lead to disorderly markets.

None of the individuals involved has commented publicly but the three banks have said they will fight the charges, calling them the result of standard practice for firms which underwrite, or commit to buying the leftover stock in capital raisings.

Reuters interviews with 13 small and mid-size Australian equity capital markets participants show how the unease created by the case has spread far below the well-heeled banks being charged to more modest stockbroking firms.

"People are going to be more reluctant to do underwrites because if you end up in a scenario where there's a shortfall like this, then how do you manage that?" said Stuart Foster, chairman and CEO of Foster Stockbroking Pty Ltd, in a telephone interview, adding that his firm did not underwrite share issues.

Diviya Patel, associate director of corporate advisory at Morgans Financial Ltd, said the ANZ case was unprecedented and that joint lead managers typically coordinated their sales of stock they picked up in an underwriting.

"In any ECM (equity capital markets) deal, post bookbuild, you have consistency in messaging and processes within the syndicate," she said.

None of the broking firms planned to reduce their involvement in capital raisings - yet - saying they would wait to learn more about the alleged wrongdoing in the ANZ case before reacting.

The ACCC, which brought the charges in its first criminal cartel prosecution, declined to comment since the matter was before the court.

SMALL END OF TOWN

Australian share raisings are getting smaller and the number of sales involving multiple bookrunners is growing, according to Thomson Reuters data, suggesting that heightened scrutiny over capital raisings would affect market participants well below the top banks and brokers.

The country had the highest number of capital raisings under $50 million on record in 2017, the data showed. Total money raised by multiple bookrunners - as in the ANZ sale - exceeded the amount raised by single bookrunners for four of the past five years.

By comparison, single bookrunner share issues raised more in four of the five years before that.

To charge participants of a smaller capital raising, the ACCC would need to believe their actions caused major damage to the economy, share market or investors but "the record to date suggests that the ACCC is not averse to referring conduct involving relatively small firms in relatively small markets for prosecution", said Caron Beaton-Wells, a professor of competition law at University of Melbourne.

Geoff Wilson, an industry veteran and chairman of Wilson Asset Management, said in an email that the "ANZ case (will) definitely have an impact on the after markets of failed capital raising," noting that his firm does not underwrite such share sales.

Another corporate finance head at a mid-tier equity markets firm, who asked not to be named, said demand for capital raisings would keep the market alive because "at the end of the day, companies still need to raise capital in a short space of time and they need the services of investment banks to do that".

"Will it completely shift the game?" he asked, referring to the ANZ matter. "I doubt it. But it will probably change some of the rules of engagement."

(Reporting by Byron Kaye; Editing by Martin Howell)

By Byron Kaye