Investment banks and other advisers who participate in capital raisings and mergers and acquisitions will face tough new standards this year in the wake of an acknowledgement by the Australian Securities and Investments Commission (ASIC) of the frequent leakage of price-sensitive and confidential information.
ASIC’s approach could see advisers, including media relations consultants, subjected to the same insider trading scrutiny as company directors, along with investors who are ‘sounded out’.
ASIC’s concerns about the manner in which leaks have become common to Australian mergers and acquisitions activity has been revealed in a consultation paper currently on issue to the financial services industry ahead of the development of best practice guidelines.
In that consultation paper, ASIC acknowledged the extent of the problem and its impact on the operations of the market.
“Over the past financial year we have observed abnormal stock market trading immediately prior to the announcement of a reasonably high number of capital raisings and merger and acquisition transactions,” the regulator said. “There also appears to have been considerable leakage of inside information to the media prior to the formal announcement of transactions.”
ASIC said both of these issues raised concerns about the practices of companies, advisers and other service providers in handling confidential information.
What is more, the regulator said an exercise undertaken last year had revealed that where leaks had occurred, Australian companies and their advisers rarely acknowledged awareness of the leaks or undertook either formal or informal investigations.
“In our discussions, many companies and advisers were adamant that leaks did not occur from within their organisation,” ASIC said. “Formal or even informal investigations of leaks relating to sensitive transactions were rarely undertaken, meaning there were no real repercussions stemming from the leak, thereby making it hard to verify whether leaks did or did not come from a particular organisation.”
As a result of its concerns, ASIC has developed a set of best practice guidelines for companies undertaking capital raisings and acquisitions that not only call for much tighter control of the distribution of information but also the formalisation of leak investigations.
Included in the guidelines is the compilation of comprehensive ‘insider lists’.
