Good News & Bad News, page-11212

ASIC tells activist shorts to tone downthe emotion

The corporate regulator has toldactivist short sellers to tone down their emotive language and publish theirreports on ASX listed companies after market trading hours to allow investorsto digest and respond to revelations.

Inresponse to an increase in reports published by short-sellers on listedcompanies, the Australian Securities and Investments Commission has released alist of what it considers to be best practice with the intention of ensuringbetter market functioning

ASIC wants short sellers to release reports “outside normaltrading hours, drawing on reliable information and avoiding overly emotivelanguage.

“Targetentities should seek a temporary trading halt to provide time to digest andcomprehensively respond to the claims of activist short sellers.”

Activist short reports are often released during trading hours with the intention of having a maximum and immediate effect on a target’s share price.

ASICsaid that even if the points in the report are plausible, there was thepotential for investor confidence to be damaged in the immediate chaosfollowing the release of the report.

Theregulator also called for activist short sellers to ensure their reportsremained balanced and rely on verifiable and selected facts.

“Engagingwith only a small and select sample of clients, ex-employees or contractedparties may not be representative of issues across the entire entity.”

“Inthese situations, short reports should disclose the sample size and compositionto allow a reader to make an informed view about how much weight to place onthis information.”

Befactual not emotive, vague or defamatory

It saidlanguage also had the potential to mislead investors and result in “panickedinvestment decisions”.

“Shortreports should be factual, relevant and expressed in a clear and objectivemanner. Emotive, intemperate or defamatory language should not be used, norshould vague or imprecise language.”

Onerecommendation that may not sit well with short sellers is to check facts withthe target entity. ASIC said authors of short reports should check their factsto avoid errors.

“Thismay provide the market with greater certainty around the issues raised,” ASICsaid.

“Italso reduces the risk of the market being misinformed and helps to mitigate therisk for the activist short seller of making false or misleading statements.

Activistshort sellers are a relatively new phenomenon in the Australian market. Sincearound 2018, short sellers have gone public with negative reports on listedcompanies such as Blue Sky, Quintis and Corporate Travel Management. More recently the likes of Rural Funds Group, Wisetech and Seek have been targeted.

While somereports have been the catalyst for an eventual collapse, other companies havefought back and largely seen off the raids.

Whileactivist short sellers have divided market opinion, ASIC’s Cathie Armour saidactivist short sellers that provide accurate and meaningful information can“have a positive impact on price formation and market integrity as they maycounterbalance excessive market optimism.

“However,activist short sellers can also unfairly distort the price of a target entity’ssecurities, which is harmful to the integrity of our markets.”