Dec 22, 2009

ASIC plots antidote for inside trader leak

 AUSTRALIAN companies rarely investigate leaks of confidential, market-sensitive information, and some feel "powerless" to control leaks, the Australian Securities and Investments Commission has found.

The rarity of investigations meant there were no real repercussions for divulging secret information, ASIC said, as it unveiled guidelines aimed at stemming leaks of price-sensitive information.

In a consultation paper released yesterday, ASIC called on companies to be "more demanding" about clamping down on leaks from advisers and other third parties.

"We are concerned that, in our discussions, there was sometimes a feeling of powerlessness among listed companies when they suspected a leak had originated from a third party," ASIC said.

Noting that the risk of confidential information being misused was "heightened" with market soundings — when institutional investors are "sounded out" about the potential appetite for a capital raising — ASIC said investment bankers should seek approval from their client company before conducting a sounding. Soundings should only happen when the market was closed or the stock in question was in a trading halt, ASIC said, and bankers should stick to formal scripts during a sounding.

ASIC called on companies to maintain registers of all people considered to be "insiders" on sensitive transactions, and for advisers to be required to hand over a current list of each person in the firm with access to the company's confidential information.

Participants in "beauty parades" — when bankers and brokers compete for roles in coming deals — should sign confidentiality agreements, and the chosen advisers should sign deal-specific agreements, ASIC said.

In a bid to clamp down on insider trading, ASIC called on listed companies to restrict the trading of employees who have knowledge of price-sensitive information, and said companies should consider formal investigations when there were leaks.

The move follows multiple examples this year of "abnormal" share price movements before deals, sparking concerns about insider trading.

ASIC said that it had observed a reasonably high number of cases of abnormal trading leading up to announcements on capital raisings, mergers or acquisitions last financial year, and pointed to "considerable leakage of inside information to the media" in the lead-up to the formal announcement of the deals.

"Both of these issues raise concerns about the practices of companies, advisers and other service providers in handling confidential information," ASIC said.

ASIC is believed to have spoken to about 50 companies, investment banks, public relations firms, law firms, brokers and accountants linked to deals marked by "abnormal" trading before they were announced.

The action follows ASIC's "Project Mint investigation" of rumours in the market, launched last year, which ASIC commissioner Belinda Gibson said this month uncovered few rumours that were "absolutely false". Ms Gibson said at the time that, when compared with the US, Canada and Britain, the treatment of confidential information in Australia was "loose".

David Horsfield, managing director of the Stockbrokers Association of Australia, said that although many organisations already kept insider lists, the guidelines could ensure there was more focus on restricting the number of people with inside knowledge in a sounding.

He welcomed ASIC's move, but said any proposals should not be allowed to slow the efficient working of the market, or add to the cost.

Duncan Fairweather, executive director of the Australian Financial Markets Association, said ASIC's proposals were "heading in the right direction".

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