Of perhaps greater significance than the Australian Securities and Investments Commission’s findings from its year-long review of how companies and their advisers handle confidential information is its undertaking to maintain a focus on market-sensitive information.
The review was largely reassuring. Companies and their advisers generally do have robust policies for managing confidential and market-sensitive information. ASIC concluded that the existing guidance that it, the ASX and industry bodies provide was largely sound, although some companies “came up short” because of poor implementation of their policies.
It was concerned, however, about the prevalence of leaks of market-sensitive information about corporate transactions, even though there had been some reduction in the number of leaks to the media since 2010. It was also concerned by the timing and extent of ‘soundings’ conducted by investment banks and brokers ahead of capital raisings, particularly when there is still active trading in the entities’ securities.
The particular focus of ASIC’s continuing monitoring will be analyst and investor briefings, with the commission saying that it will undertake enforcement action against insider trading and breaches of continuous disclosure obligations.
It will also conduct a “targeted” review of analysts’ research reports, looking for changes in research recommendations that are not based on publicly available information, and will maintain ongoing surveillance of brokers and investment banks.
Last year’s controversy over whether Newcrest Mining privately briefed analysts ahead of a production and earnings downgrade and confusion about the disclosure obligations of companies when they receive takeover approaches (like David Jones and Treasury Wine Estates) form a backdrop to ASIC’s sharpened interest in issues of confidentiality.
While ASIC didn’t find any evidence of companies making market-sensitive information selectively available to investors or at analysts at the briefings it attended last year, it says the review was limited in nature and not conclusive in relation to the market as a whole.
At the bigger end of the corporate sector there are generally good disclosure practices, with reasonably widespread broadcasting of group briefings and documentation of smaller and more private meetings.
There will always, however, be some risk of inadvertent leaking of market-sensitive information in dealings with analysts, fund managers or the media. There would still appear to be instances of companies or their advisers trying to condition the market for unexpected developments via selective leaks.
Selective releases of price-sensitive information, whether deliberate or inadvertent, undermine perceptions (and the reality) of the market’s integrity. They fuel cynicism among smaller investors, who generally aren’t the recipients of leaks, about its fairness.
For the companies concerned, apart from the obvious breaching of continuous disclosure laws, leakage of sensitive information could also facilitate insider trading.
ASIC has produced some detailed recommendations for listed entities, analysts and advisers about how to ensure they comply with best-practice disclosure policies.
It is, however, the heightened awareness among companies, their advisers, analysts and fund managers that the review should induce — and the threat of closer and more targeted scrutiny of disclosure practices and more aggressive enforcement — that may have a greater and more lasting impact.