15.07 2014

ASIC Report 393 – Investor briefings in the spotlight

 

ASIC has recently released ‘Report 393 – Handling of confidential information: Briefings and unannounced corporate transactions’. The Report outlines dominant areas of risk for listed entities around the handling and disclosure of market-sensitive information. Read further for details of ASIC’s recommendations and how they will affect your organisation.

Background

Over the past year ASIC has increased its inquiries into the handling of confidential information by listed entities, which culminated in the recent release of ‘Report 393 – Handling of confidential information: Briefings and unannounced corporate transactions’ (Report) outlining ASIC’s observations about the handling and disclosure of market-sensitive information within listed entities. The Report highlights notable risk areas both in the context of analyst and investor briefings, as well as around unannounced corporate transactions. The leakage of market-sensitive data about a listed company prior to a market announcement can generate conditions of selective access to information, which increases the risk of insider trading and threatens the outcome of corporate transactions.

Analyst and investor briefings

Though useful as a supplement to formal market announcements, ASIC considers analyst and investor briefings to be a significant risk area for selective disclosure of market-sensitive information and breaches of continuous disclosure rules.

To promote confidence that the market is trading with the same information on equal footing, ASIC considers that it is good practice for listed entities to provide the broadest possible access to briefings, as well as to recordings and transcripts. ASIC believes organisations should be particularly vigilant in relation to smaller and less formal briefings. The less structured and scripted a discussion, the greater the risk that confidential, market-sensitive information may be disclosed.

Outside of its review, ASIC noted that some entities try to manage the market’s expectations through selective briefings to bring analysts’ predictions ‘in line’ with internal forecasts before the company releases its results or provides profit guidance. The regulator strongly urges organisations to refrain from any attempts to manage or correct market expectations through selective briefings.

Handling confidential, market-sensitive information about transactions

In the context of corporate transactions, ASIC is concerned that listed entities are over reliant on their advisers to set the approach for keeping market-sensitive information confidential. This is particularly the case for entities that do not have specific document policies and procedures to deal with transaction related confidential information. Not a single listed entity surveyed had a leak investigation policy. In fact, ASIC reported that only one organisation had a sophisticated understanding of the issues and risks in this area and took proactive steps to address them.

ASIC recommends that companies employ targeted internal controls to protect confidential, market sensitive information in the lead up to a corporate transaction. Recommendations for listed entities include:

  • adopting a ‘need to know’ principle (i.e. only giving people who have a real need to know access to confidential, market-sensitive information);
  • maintaining a list of insiders;
  • using appropriate physical separation and document protection measures to enable discussions about transactions to take place in a closed environment;
  • reminding staff not to read confidential, market sensitive documents in public areas or have confidential discussions in places where they could be overheard by others;
  • using systems and controls to quarantine confidential market sensitive information from contractors and other service providers that share access to company systems;
  • implementing policies and appropriate training to assist employees in dealing with approaches by the media; and
  • preparing for leaks about corporate transactions by composing draft requests for trading halts and draft ASX announcements.

Market soundings

It is common practice for underwriters to ‘sound out’ institutional investors in advance of announcing a capital raising to gauge their interest. The timing and number of soundings can significantly increase the risk of leaks and provide opportunities for insider trading. ASIC is concerned that the interests of a listed entity and its advisers who will often act as underwriters may not perfectly align. The Report urges companies to acquire a solid understanding of the process that their banks and advisers intend to undertake if they sound the market in relation to a potential capital raising and ensure they have appropriate controls for protecting confidential, market sensitive information.

Further information

The measures that any particular entity must take to manage confidential, market-sensitive information will depend on a multitude of factors. It is up to the company to determine which measures are most applicable, within the overarching context of keeping the market informed on a timely basis and maintaining confidence in market integrity.

Should you have any queries about your obligations surrounding market-sensitive information, or require any assistance in implementing the recommendations outlined in ASIC’s Report, please contact us.

The full report is available for download here.


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