Published by the Australian Financial Markets Association in the Policy and Markets Brief, August 2015.
By Cathie Armour
It's been five years since ASIC took over supervision of Australia's share markets and in that time the regulator has achieved significant market integrity outcomes.
In the five years since ASIC took over responsibility for regulating Australia's equity and futures markets, there has been a sustained focus on deterring insider trading.
For instance, in July former Northern Star Resources director Peter Farris was sentenced to 2 years and 9 months jail fully suspended and fined $65,000. In June, Daniel Joffe and Nathan Stromer were also convicted of insider trading. Joffe, a Moody's analyst, learned two companies were going to be taken over and passed this information to Stromer who bought shares and contracts for difference (CFDs) in the companies. Both men were sentenced to 27 and 24 months jail fully suspended.
Insider trading distorts our markets by allowing people to profit at the expense of others using information not generally available. It's a breach of the essential value of fairness that underpins Australia's social and financial culture – and ASIC takes it very seriously.
Over the last five years 38 people have been prosecuted for insider trading as a result of ASIC investigations, with a success rate of 84% (27 convictions) in the 32 cases in which liability has been determined (five people are now awaiting trial). In the first six months of this year alone, ASIC achieved four criminal convictions for insider trading.
ASIC's investment in technology, such as the Market Analysis and Intelligence (MAI) surveillance system, has made it easier for us to detect insider trading. This system allows us to pinpoint any suspect trading using over 80 different metrics to profile the subject. Using these reports, we can ensure no information is overlooked when building a case for insider trading.
Not only is ASIC getting runs on the board for insider trading, we are getting them faster than ever before. MAI gives us immediate information about individual traders and trading behaviour, as well as far greater visibility. As a result, there has been a significant reduction in the time taken to start investigations. MAI has also let us cut the time taken to assemble evidence by using tagging, market replay and enhanced reporting. In one case, this functionality reduced the time taken to compile evidence from five to two weeks.
Before 2010, the period between identification and investigation was more than three months. Since transfer of supervision this has halved to six weeks, and in many serious cases investigations happen within days. Overall, there has been a 23% reduction in the time between ASIC identifying misconduct to handing the matter to the Commonwealth Director of Public Prosecutions.
ASIC's ability to see trading as it occurs, to watch for trading in stocks we know are in play, and to start investigations makes us a credible enforcer of Australia's insider trading laws. A 2014 Melbourne University insider trading study concluded ASIC is bringing more insider trading cases to light, having greater success prosecuting them and completing them faster.
Our message to those who trade using inside information is simple. We are determined to exercise our powers, to use our expertise and our technology to ensure market integrity.
Cathie Armour is a Commissioner with the Australian Securities and Investments Commission.
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