The Australian Securities & Investments Commission (ASIC) has reviewed marketing practices around initial public offerings (IPOs), with a particular focus on the emerging use of social media.
We look at the key findings and the relevance to New Zealand.
The review - Report 494 - was conducted between October 2015 and March 2016. Key findings include:
- materials intended for restricted distribution (such as “pathfinder” prospectuses or institutional roadshows) should be subject to controls to ensure that they are not exposed to unsophisticated investors
- information should not be disseminated to the media or potential investors prior to the prospectus being lodged
- issuers and their advisors should ensure that prospective financial information is not given undue weight and that any assumptions and risks are also included in the marketing material
- oversight over telephone communications and social media posts could be improved, and there are currently regulatory barriers in Australia to using social media for IPO marketing.
Our more liberal pre-registration regime
In New Zealand, as long as appropriate disclaimers are included, it is legal to distribute any information to whomever the issuer wants prior to registration (subject to normal accuracy requirements).
As highlighted in our 2016 New Zealand Equity Capital Markets Trends and Insights publication, detailed fact sheets and similar pre-registration materials are increasingly being distributed pre-lodgement to retail investors.
The Financial Markets Authority (FMA) has encouraged this trend and the wider distribution of research reports as a way of addressing information imbalances between retail and institutional investors.
The Australian regime is more restrictive. Hence ASIC's concerns, expressed in the review:
that investment banks should be placing stricter controls on the distribution of “pathfinder" draft documents and other materials prior to registration, and
about emails to users of an investor forum pre-prospectus about upcoming IPOs.
We consider it would be a retrograde step and out of kilter with the FMA's goals to have unnecessarily prescriptive restrictions on access to information applied in New Zealand.
Balanced disclosure of financial information
ASIC's concerns about prospective financial information being given too much prominence in marketing materials without due explanation of underlying risks or assumptions and about issuers materially downgrading their forecasts within a couple of months of listing also apply in New Zealand. However, we do not think there is a regulatory expectation in New Zealand that all risks and assumptions need to be set out in marketing materials.
Instead, the message from the FMA is that, while providing investors with early access to marketing materials can be of assistance, ultimately investors should be basing their investment decisions on the Product Disclosure Statement (PDS).
Ensuring that investors are directed to the PDS is therefore more important for any offer-related marketing.
The FMA's main concern recently has been around the disclosure of pro forma financial information rather than prospective financial information. We understand that it plans to publish further guidance about how non-GAAP financial information, including pro forma financial information, is published in the context of offers.
The main issue in both Australia and New Zealand is that securities laws require certain specified wording to be included in any advertisement for the IPO (in the case of Australia, the content is more tightly prescribed pre-registration as well). Having to include this specified wording is generally not practicable in the context of social media.
ASIC has flagged that it is open to exploring whether there might be ways to meet the policy aims of the advertising regime without requiring strict compliance with its terms for forms of social media that are not well adapted to complying with those obligations.
If FMA and ASIC were able to grant relief from having to include disclaimers in social media posts, it would allow for more innovative advertising approaches by issuers through the use of social media campaigns.
However, even if this happens within our two jurisdictions, there may still be issues under overseas securities laws as content on the internet tends to be freely available around the world.