Australia’s corporate watchdog has probed the information exchanges between listed companies and market analysts in an effort to stamp loose data handling procedures that lead to insider trading and market manipulation.
In 2014 the Australian Securities and Investments Commission (ASIC) won its suit against Newcrest Mining after discovering the company had handed over confidential and market-sensitive data to a number of research analysts, without also releasing the same data to the market. The miner was fined $1.2 million by the courts.
But ASIC says the practice is by no means limited to this case.
In a report handed down today, it complained many public companies are ignoring their own information handling policies and risking the integrity of the market.
“Where companies engage in selective briefings and disclose [material, non-public information] to only a portion of the market, it creates opportunities for insider trading and undermines other investors’ confidence in the market as a level playing field,” it said.
Under insider trading and corporate laws, public companies are expected to build “Chinese walls” into their structures that block secret internal market data from falling into the hands of trading, sales, and corporate advisory staff.
If sharing is unavoidable, staff that come in contact with this data are expected to be “wall-crossed” - meaning they are added to a register of recipients whose activities using that data is monitored and restricted.
While ASIC said most companies have these sorts of protocols in place, in many instances they were being ignored.
“We identified instances of research analysts receiving information from listed companies, and passing the information to the public (trading) side of the firm without first assessing whether it was MNPI," ASIC said.
“We saw staff members added to a wall-crossing register without their knowledge.
“We are also aware of instances of corporate advisory staff bypassing internal controls in their communications with research analysts."
ASIC urged listed firms to reinforce their internal information barriers, including by placing selective electronic blocks on communications between research sales and corporate advisory staff, or at least monitor information exchange between these groups.
It also recommended businesses enforce checking processes before information is released, and to give analysts sufficient time to review reports for inadvertent sensitive data leaks.