Australia was one the first countries in the world to prepare itself for the wave of retail investors participating in the sharemarket.
We recognised that unless investors had confidence that the market was informed, and unless there was equal access to price sensitive information, we could not hope to attract and retain investor support for our markets and for the companies that rely on the market for capital. For this reason, Australia moved ahead of any other country in the world in requiring listed public companies to disclose on a continuous basis. After almost 10 years of continuous disclosure, how should we appraise ourselves? Australia's financial markets still rank highly among the most transparent, efficient and well-regulated markets in the world. Our laws on continuous disclosure have contributed much to this result. However, ASIC still finds worrying evidence that directors may not place the same weight on their duty to the market as they place on their duty to shareholders.
Duty to shareholders and duty to the market
Directors of listed public companies rightly place enormous weight on their duties to shareholders, both in allocating shareholders funds effectively and in achieving the highest possible value for shareholders assets. Unfortunately over the past few years, ASIC has had to intervene on issues of disclosure too often. Information has leaked to the market, been disclosed inadequately or too late. When ASIC or ASX intervenes, new or further disclosures are often made, and for company directors and officers the matter ends there. ASIC increasingly sees this as unsatisfactory, and as inadequate to ensure a culture of compliance with the disclosure objectives at the heart of the Australian regime. For this reason, ASIC chairman David Knott has called for a review of the sanctions and penalties available to deal with market offences and breaches of ASX Listing Rules. He has suggested the current regulatory regime might be enhanced by providing for financial penalties for companies who fail to meet their disclosure obligations in a timely way.
Despite considerable public debate, an ASIC discussion paper and changes to the ASX Listing Rules, problems with analysts briefings still occur. Even major Australian companies have struggled to manage their relationship with analysts to ensure that information is released to the market as a whole and not to a selected few. For example, ASIC's investigated an ASX referral relating to briefings of analysts by AMP during July 2001 and its subsequent publication of revised profit expectations for the year ended 30 June 2001. ASIC found no evidence that non-public price sensitive information was released at the briefings, nor is there evidence that there was any insider trading in the shares of AMP prior to announcement of the revised profit expectations. On the other hand, ASIC considers that AMP probably did commit a breach of ASX listing rules between 23 July and 26 July and obtained the advice of senior counsel to that effect. The breach was constituted by AMP's failure to notify the ASX of its view that there was an error in a number of analysts' forecasts of half-year investment income and profits. The breach occurred once AMP commenced private briefings with some of those analysts in which it sought to correct that error.
However, even if ASIC is correct in concluding that the listing rules were breached, ASIC was advised by senior counsel that there was insufficient evidence to establish that the breach was intentional, reckless or negligent as required in order to commence proceedings under the Act. It is disappointing that such a large company conducted analyst briefings that caused these problems. However, soon after ASIC's investigation commenced, AMP amended its policy to introduce a prohibition on future selective analyst briefings pre-result.
Speculation about possible takeovers is one the most well-known triggers to fire up a company's share price, and discussions about possible changes of control raise immediate and obvious continuous disclosure issues. In March 2002, ASIC concluded another investigation in relation to WMC Limited. ASIC's investigation followed an Australian Stock Exchange (ASX) referral relating to price movements in WMC shares and speculation about possible takeover discussions between WMC and Alcoa Inc (Alcoa) in October 2001. The specific issues centred on WMC's responses to ASX queries on 12 October 2001 and 17 October 2001. In its response to the 12 October query, WMC referred to general speculation about possible asset break-ups or takeovers but stated that it did not need to make any announcement to the ASX. In response to the 17 October query, WMC announced that it was in discussion with a number of parties, including Alcoa, which might lead to a takeover offer or reconstruction. ASIC has been advised by senior counsel that although there is a good arguable case that WMC breached ASX continuous disclosure rules in the period prior to 17 October 2001, there is considerable doubt that any effective remedy is available to ASIC under the Corporations Act.
Speaking about the investigation, David Knott said: "ASIC is disappointed that a company of WMC's stature appears to have adopted a technical and narrow approach to its disclosure obligations on this occasion."
ASIC considered that one of the obvious purposes of the ASX's query on 12 October 2001 was to elicit WMC's response to market speculation about discussions with Alcoa. Such discussions were in fact taking place and the market in WMC securities at the time was uninformed. However, it was only when ASX explicitly required WMC to confirm or deny speculation of takeover discussions on 17 October 2001 that the company confirmed its discussions with Alcoa. There appears to be no good reason why the disclosure made on 17 October should not have been made on 12 October.
Where to from here?
As a small financial market in a globally competitive environment, Australia cannot afford to let its strong reputation slide. The efficacy of Australia's continuous disclosure rules depend in large part upon the willingness of our corporate community, especially company directors, to observe their spirit and purpose. Failure to do so undermines public confidence in the disclosure regime and will increase pressure for more prescriptive disclosure obligations. We welcome public discussion and debate about the right measures to support continuous disclosure and thus ensure that Australia maintains its strong competitive positions as a well-regulated, open market.
The purpose of this database is to provide a full-text record of all articles that have appeared in the CDJ since February 1997. It is aimed to assist in the research and reference process. The database has a full-text index and will enable articles to be easily retrieved.It should be noted that information contained in this database is in pre-publication format only - IT IS NOT THE FINAL PRINTED VERSION OF THE CDJ - therefore there might be slight discrepancies between the contents of this database and the printed CDJ.
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