ASIC reviews marketing practices in IPOs
Published by the Stockbrockers Association of Australia in the Stockbrokers Monthly, November 2016.
ASIC recently reviewed the methods used by firms and issuers when marketing initial public offerings (IPOs) to retail and high net worth investors. In particular we wanted to assess whether, and how, firms and issuers were using more innovative methods (e.g. social media) to market IPOs to investors. We also assessed whether firms were targeting certain investor groups for specific types of IPOs (e.g. higher-risk IPOs, including for emerging market issuers).
The findings from our review have been published in Report 494 Marketing practices in initial public offerings of securities. Overall, we found most firms and issuers adopted good marketing practices, although we did identify some areas of concern where improvements could be made.
We observed that all firms used some form of 'traditional' marketing methods (e.g. telephone calls, emails, roadshow presentations, websites and advertising) to market IPOs. Some small to medium-sized firms have started to use more innovative techniques to market IPOs, including social media (e.g. Twitter, Facebook, LinkedIn, WeChat and You Tube), OnMarket BookBuilds, crowd-sourced funding sites, and other connecting platforms which link issuers directly with investors.
The report discusses the following areas of concern identified during our review, and provides recommendations on how these can be addressed firms and issuers:
- Oversight weaknesses: There were some inadequacies in the monitoring of marketing through telephone calls and social media, and in ensuring that marketing material is kept up to date.
- Misleading communication: There were instances of:
- undue prominence being given to forecasts in marketing messages, and
- misstated information (including of ASIC's regulatory role) in the marketing of emerging market issuers.
- Inadequate control on access to information: Access to institutional roadshows was not always limited to AFS licensees, access to pathfinder prospectuses was not limited to sophisticated or professional investors, and key information about the IPO was sometimes disseminated to the public before a prospectus was lodged with ASIC.
Our review found that social media was not heavily used to market IPOs. Firms that used social media tended to be small to medium-sized, and typically it was in connection with IPOs of emerging market issuers or technology companies targeting retail investors. In some instances, social media posts contained misstatements about the IPO as well as ASIC's role. We also found some instances where compliance staff at firms may not have been aware of the social media posts being made by their employees.
We recommend that firms apply controls to social media posts similar to those in place for other marketing. For example, by:
- educating employees on using social media for marketing IPOs in compliance with the Corporations Act 2001, and
- ensuring social media posts are reviewed before being posted.
Emerging market issuers
Our review found that the marketing of IPOs of emerging market issuers (EMIs) generally targeted retail and high net worth investors with a connection to the country of the EMI. Much of the marketing material was prepared in the language of the relevant emerging market, which raised additional challenges for firms and issuers when ensuring consistency with the prospectus. We observed some instances where marketing material for EMIs misstated ASIC's role, including that we had granted listing approval and approved prospectuses.
We recommend that firms and issuers targeting investors from a non-English speaking background should:
- ensure communications are clear and accurate (including any statements about the regulatory framework in Australia and about ASIC's role), and
- if marketing material is to be produced in a language other than English, ensure these materials are understood by the firm or issuer, including getting translations before publication (if necessary).
ASIC anticipates doing further work over the 2016–17 financial year looking at investor behaviour, what influences investor decision making, and applying the insights of behavioural economics.