Today, ASIC released Report 393 Handling of confidential information: Briefings and unannounced corporate transactions (REP 393). REP 393 looks at the way companies and their advisers handle confidential information.

‘Australia’s rigorous continuous disclosure regime, combined with sound guidance and robust industry standards, ensures retail investors can be confident in the integrity of the market,’ ASIC Commissioner John Price said.

‘However, it’s important for companies not to become complacent. They should address any perception – real or otherwise – about unfairness in access to market-sensitive information.’

In 2013, ASIC looked at the handling of confidential, price-sensitive information during analyst and investor briefings, and by companies and their advisers before the announcement of market-sensitive corporate deals.

‘Some companies came up short because of poor implementation of their policies and procedures to handle material information – not because there were no policies and procedures,’ Mr Price said.

‘Also some companies at the smaller end of the market delegated responsibility for protection of their deal information to their advisers. Companies must understand the risks of going down this path. Selective access to information can lead to market misconduct, including breaching continuous disclosure laws and increasing the risk of insider trading. It can also lead to a perception of unfairness amongst shareholders and the broader market.’

ASIC Commissioner Cathie Armour warned companies that ASIC has the people, powers and systems to detect misconduct.

‘Our real-time market surveillance system gives us the ability to aggressively interrogate trades before announcements, and we will take enforcement action where appropriate,’ Ms Armour said.

To avoid reputational damage or legal transgressions, REP 393 makes a number of recommendations for companies, advisers and analysts.

‘Companies must take responsibility for the proper handling of their confidential information. Sub-contracting to third parties and not worrying about it is not an option,’ Mr Price said.

In the coming months, ASIC will target analysts' research reports to determine if selective briefings are occurring and will observe how research analysts are supervised.

‘We want to ensure that any forecast or recommendation changes are based only on public material information,’ Ms Armour said.

‘Where inappropriate disclosures are identified, we will consider enforcement action.’

Background

Key recommendations in REP 393 include:

• Conduct at briefings: Listed entities must remain vigilant about the handling and disclosure of confidential, market-sensitive information during analyst and investor briefings. Stakeholder engagement is a key risk area for selective disclosure of market-sensitive information. In particular:

  • listed entities should refrain from 'massaging' market expectations through selective briefings

  • access to briefings by listed entities should be as broad as possible, and

  • analysts and institutional investors should not elicit confidential, market-sensitive information from listed entities, and should know what to do if given such information.

• Information on unannounced corporate deals: In the transactions reviewed ASIC found listed entities in the small to mid-capitalisation range relied heavily on advisers on how to handle transaction-confidential information. Delegation of responsibility has risks. This is particularly so when the interests of a listed entity and the adviser do not align, such as in underwritten capital raisings. To prevent information leakage, listed entities should have frank discussions with underwriters about soundings required before the transaction's announcement, particularly where soundings are conducted in a live market.

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REP 393