Government commissions market review

The Government has committed $100,000 to an investigation into the use of margin lending by company directors and ‘rumourtrage’, among other issues.

The Government has commissioned the Corporations and Markets Advisory Committee (CMAC) to conduct the review of market practices, which will also include a review of ‘blackout’ trading by company directors and the potential disclosure of market sensitive information at analysts’ briefings.

The Minister for Superannuation and Corporate Law, Senator Nick Sherry, said the impact of directors’ margin lending arrangements and the spreading of false rumours must be understood, and laws changed if needed.

A company’s share price can be severely discounted where directors sell off large parcels of shares to meet a margin call, and Sherry said concerns have been raised about the adequacy of market disclosure in this area.

As a result, “uncertainty remains as to the nature of directors’ obligations to disclose both to their boards and to the market — we need to clear this up once and for all,” Sherry said.

‘Blackout’ trading is when directors trade in their own company stock at a time when their company is prohibiting others doing the same. Surprisingly, blackout trading isn’t currently against the law.

“Research has found a very significant lack of compliance with regard to rules around trading in the ‘blackout’ period,” Sherry said.

“This is unacceptable and makes a mockery of the rules restricting such trading.”

Concerns have also been raised that some market participants, both locally and overseas, are spreading false information to deliberately drive down the share prices of certain companies.

Sherry said as such it’s appropriate to review the regulatory regime governing rumours and market manipulation, with specific focus on the spreading of false information.

The committee will also examine the disclosure of price sensitive information at closed company briefings.

“There are concerns that confidential briefings are being provided to analysts which create the perception that some analysts have access to critical information that is not available to other analysts, shareholders and the general public,” Sherry said.

“I want to have a good look at this to ensure no one is being systemically and unfairly advantaged, especially compared to ordinary shareholders.”

The Government has approved a grant of $100,000 to fund the investigation. CMAC will report its findings to the Government by June 30, 2009.