asx swoops on insider trading

At last the regulators might be doing something about this.


Adele Ferguson | June 28, 2008
AN investigation by the ASX into company trading during blackout periods has uncovered a staggering 795 trading breaches by company directors, with 70 referred to ASIC for investigation.

The ASIC study, which covered the three months to March 30, is the clearest indication yet that insider trading is rampant among company directors in Australia and requires tougher policing by the ASX and ASIC.

The shocking results follow escalating warnings by the ASX and ASIC about share lending, short selling and market rumours.

As part of the crackdown, the ASX will reveal the names of directors, the types of trades, and correspondence between the ASX and the director for more serious breaches from July 1.

In response to the ASX report, ASIC yesterday released a new guide on how directors should comply with disclosure requirements. ASIC also confirmed it was investigating the 70 possible breaches of the Corporations Act by directors, and said that if necessary, it would take enforcement action. The 70 cases involved active share market trades that were reported so late that they did not merely break the ASX's five-day limit, but the 14-day legal limit imposed by the Corporations Act.

In a separate statement, Eric Mayne, chief supervision officer of ASX Supervisory Markets, said: "Failure to properly disclose creates the perception of potential market misconduct and undermines confidence in the integrity of the market."

The ASX report reveals that of the 4137 lodgments of trades by directors in the first quarter of the year, 538 breached the listing rules because of lateness, with 496 breaches considered to be "less serious" in nature and 42 breaches considered to be of a "more serious" nature.

"ASX has referred to ASIC those breaches of the Corporations Act which relate to 'active' trades by directors, that is, on market trades. There were 70 potential breaches in this category," the ASX report says.

During the blackout period, also known as the period between the close of financial books and the release of the entity's half-year and full-year results, there were 3218 changes of directors' interest notices lodged, with 795 trades taking place during the blackout period.

The report says that of the 795 trades conducted during the blackout period, 52, or 7 per cent, related to entities within the S&P/ASX 200 Index and 135, or 17 per cent, of the trades related to entities within the All Ordinaries Index, which represents about 500 listed companies.

Of the active trades during the blackout period, 57 may have contravened the trading policies of the entities involved. These trades were in the securities of 33 separate entities, of which two were in the S&P/ASX 200 Index and nine were in the All Ordinaries Index.

Australian Institute of Company Directors chairman John Story said he would be concerned if there was any evidence of insider trading by company directors, but he said the blackout period was not an indication of insider trading.

"Company directors are obliged to keep the market formally informed and so any assumption that there is a breach because a director trades during that period is misleading," he said.

"To my mind, I remain to be convinced of widespread behaviour of insider trading," Mr Story said.

Erik Mather, managing director of corporate governance adviser Regnan, said: "There is an epidemic that is out of control in terms of director share trading because not enough policing has been done by the ASX and ASIC in the past." He said the figures showed a clear breakdown in governance when it came to director share trading.

Mr Mather said: "Of great concern is the fact that governance of director share trading is getting worse, not better. Directors have had plenty of warning, and it is now time that regulators take a very big stick to those directors who cannot control their share trading."