Australian equity market cleanliness a crucial ASIC priority
- Wed 26 June 2024
- 3 MIN READ
Supervising the integrity of Australia’s equity markets is one of ASIC’s most important functions. Our market is among the cleanest in the world, and we are constantly seeking out any misconduct. While we are targeting leaks ahead of market announcements and insider trading, listed entities have a role to play in protecting their confidential information and reporting misconduct to ASIC.
A clean market that is fair, orderly, and transparent is critical to an efficient economy. It facilitates Australian businesses to raise capital and manage risk, and gives investors confidence to participate.
With most Australians having a stake in our listed equity markets – if not directly through their own investments, then indirectly through the nation’s $3.8 trillion superannuation pool – the health and cleanliness of our markets have direct impacts on the financial wellbeing of Australians.
"Australians and listed entities should rest assured that we continue to have one of the cleanest equity markets in the world. "
Market cleanliness and insider trading
Australians and listed entities should rest assured that we continue to have one of the cleanest equity markets in the world. ASIC’s latest work to measure equity market cleanliness (suspicious trading ahead of company announcements) is nearing completion and we will have more to say in the weeks ahead.
As part of our efforts to keep Australia’s markets clean, ASIC has been actively targeting insider trading through our new award-winning system which automatically hunts for and detects suspected market misconduct [1].
We are also monitoring developments in innovative data science tools, such as artificial intelligence and machine learning, to consider potential applications for surveillance. These measures will enable us to enhance our capability, for example, to detect other forms of insider trading not driven by announcements, such as front running.
At present, six insider trading criminal prosecutions are before the Courts, and multiple insider trading matters are under active investigation or have been referred by ASIC to the Commonwealth Director of Public Prosecutions for assessment.
Our recent successful court actions include the conviction of former Tesla director Kurt Schlosser [2] and corporate adviser Cameron Waugh [3] for insider trading.
Keeping information confidential
To avoid insider trading and breaching disclosure obligations, entities should consider whether their controls – policies, procedures, training and monitoring – are appropriate and meet legal and regulatory requirements. They should also carefully consider the handling of confidential information and conflicts to ensure the risk of insider trading is being managed.
We continue to see media reporting ahead of fundraising and merger and takeover activity. Some securities have had trading halts after media articles divulged confidential information about deals. Announcements in the transaction space are often highly material and price sensitive.
Leaks of this kind undermine market integrity and may negatively impact the value of securities as well as the attractiveness of Australian markets as a place to raise capital and transact. This impacts all Australians.
Listed entities should have a formal leak policy outlining steps to prevent, monitor and react to any leaks of material price sensitive information. Their advisers should also have policies and appropriate controls to limit access to confidential information to only those who require it. We have provided recommendations in the past on good practices in managing confidential information [4].
Nevertheless, management of inside information does not only apply to listed entities. It also applies to entities operating in private markets where they interact with information about listed entities and securities. These parties should also have appropriate arrangements to identify and manage confidential information they receive.
ASIC is actively targeting leaks and we will take strong action to address this poor practice. Listed entities should be part of the solution and hold their personnel and advisers to account.
"To avoid insider trading and breaching disclosure obligations, entities should consider whether their controls – policies, procedures, training and monitoring – are appropriate and meet legal and regulatory requirements."
Our response to an uptick in privatisation
The global financial landscape for entities is changing. Some offshore markets (e.g., the United States) have had a long-term trend of declining public listings, with companies being taken private or consolidated into other entities. Australia has had a recent drop in listed companies, and fewer entities are lining up to come to market.
A reduction in the number of large, strong performing listed entities limits opportunities for Australians to participate directly in the potential future success of Australian companies. There is also likely more concentration in large institutional investors in these companies. This dynamic may pose risk to the equitable participation in listed entities by smaller investors.
Private markets do not only provide fewer investment opportunities for retail investors, they also have reduced financial reporting, disclosure, and corporate governance requirements. There is an associated risk of insider trading because there can be many contact points between listed entities, consultants and experts.
In response, ASIC is expanding its focus to respond to changes in the structure of capital markets. This includes examining other products and markets, including debt markets, when we conduct our market cleanliness work and further consider how firms are managing inside information.
Entities should report concerning behaviour to ASIC. Institutional investors should ensure they act in the best interests of their investors and/or members and promote equitable investor outcomes using their influence, including to enhance market cleanliness.
ASIC is committed to ensuring that Australia’s markets remain among the cleanest and most transparent in the world. This requires collaborative effort on the part of ASIC, market operators, listed entities and market participants.
[1] ASIC’s insider trading detection project wins data award
[2] 23-071MR Former Tesla Motors Australia director sentenced for insider trading | ASIC
[3] 24-059MR Cameron Waugh sentenced to two years imprisonment for insider trading | ASIC
[4] REP 393: Handling of confidential information: Briefings and unannounced corporate transactions
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