The Australian Securities and Investments Commission (ASIC) has warned companies, analysts, advisors and market participants generally that it is continuing its crackdown on the handling of confidential information and selective briefings to analysts.  “We do act, and we will act where misconduct occurs”, warned ASIC commissioner John Price.

In this Alert Partner Nicole Radice and Associates Emily Ackland and Katherine Hammond outline 10 recommendations, including those from ASIC, for listed entities and its expectations for the handling of confidential information and briefing analysts, plus what enforcement and regulatory action ASIC will take.

Background

ASIC’s recently released Report 393 Handling of confidential information: Briefings and unannounced corporate transactions sets out key observations about how listed entities and their advisers handle confidential and market sensitive information.

Handling of confidential information and in particular, selective disclosure, became a focus for ASIC in 2013 following the Newcrest Mining Limited saga.  Movements in Newcrest’s shares prompted questions about what was disclosed in briefings to some analysts before the downgrades were announced (and is still the subject of investigation).  Please click here to view our previous Alert.

ASIC remains concerned that analyst briefings (formal or informal) can be a significant risk for selective disclosure of market sensitive information, whether intentionally or inadvertently.  This is contrary to the continuous disclosure regime, undermines market integrity and gives rise to a risk of insider trading.

10 tips for listed entities

ASIC recommends that listed entities should:

  1. Ensure company policies are well understood within the entity (including by directors and staff) and are consistently followed.
  2. Be vigilant about what information is disclosed at analyst and investor briefings.

ASIC’s Regulatory Guide 62 Better disclosure for investors sets out ASIC’s specific guidance for listed entities about briefing analysts.

  1. Refrain from trying to manage or correct market expectations through selective briefings. 

When the market’s expectations diverge materially from the entity’s internal forecasts, the entity may think it appropriate to conduct analyst briefings so that the market is not surprised when the entity releases its results or provides profit guidance.  This is contrary to the continuous disclosure regime, and market sensitive information should be released by making an ASX announcement.

  1. Make access to their analyst and investor briefings as broad as possible, including through making webcasts, podcasts and/or transcripts available.
  2. Prepare for leaks about corporate transactions by composing a draft request for a trading halt and a draft ASX announcement.

ASX Guidance Note 8 also suggests that an entity should closely monitor the market, media and certain social media for signs of a leak.

  1. Have frank discussion with their advisers about if and when a sounding should be conducted about a capital raising (and how many investors may need to be sounded), and consider using trading halts to manage the risks associated with a sounding.

A sounding involves bankers or brokers gauging, in advance, investor demand for a transaction and its potential pricing.  

In addition to the above points, HopgoodGanim also provides the following recommendations stemming from ASIC's report which we consider to be useful guidance for listed companies:

  1. Have in place written policies for handling confidential, market sensitive information.
  2. Not provide any information to analysts that the company cannot disclose under the relevant industry reporting code or under the listing rules (because this may constitute making a misleading and deceptive statement). 

In the mining and exploration sector certain information may not be announced because it is not compliant with the relevant industry codes (for example the Joint Ore Resources Committee Code (JORC)) or the listing rules for reporting exploration results, mineral resources and ore reserves. 

  1. Enter into confidentiality agreements restricting disclosure and use of information with advisers in connection with material transactions.
  2. Be aware of the perception of selectivity that one-on-one and smaller briefings can create, even if no confidential price sensitive information is disclosed.

Further regulation and enforcement action

Report 393 notes that ASIC considers the existing guidance issued by ASIC, the ASX and industry bodies is largely sound and recognised by the majority as best practice.  However, the challenge for listed entities is implementing the guidance in a consistent manner and approaching the issues with a view to following the spirit of the guidance.

ASIC does not consider changes to the law or guidance necessary and instead has put companies, analysts and market participants on notice that it will continue to focus on:

  • analyst and investor briefings, and
  • ensuring that the market is fair and efficient in the handling and treatment of confidential market sensitive information.

“Our real-time market surveillance system gives us the ability to aggressively interrogate trades before announcements and we will take enforcement action where appropriate”, commented ASIC commissioner Cathie Armour. 

Final remarks

ASIC’s focus appears to be on listed entities’ procedures and processes for protecting confidential and market sensitive information and their proper implementation.  Whilst ASIC recognises the importance of a listed entity actively engaging with its shareholders and the investment community, the company needs to be vigilant to ensure the proper handling of confidential and market-sensitive information. 

A full copy of Report 393 can be found here.