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Corporate Advisory Alert: Control of market sensitive information insider trading - 3 August 2011

Two recent events have illustrated the increase in trading surveillance by ASIC since it assumed market supervision from ASX in August last year:

  • the release of ASIC's report into market supervision for the first half of 2011; and
  • the prosecution of an employee of a "proxy solicitation" business owned by Computershare.

Here, Associate Richard Hanel looks at these two events in detail.

What are the key points you need to be aware of?

  • Companies must be vigilant in adopting and implementing trading policies in the wake of increased ASIC scrutiny and the number of matters referred to ASIC's Deterrence Team.
  • The increased focus and use of technology by ASIC means that persons who elect to participate in insider trading now run a much greater risk of being caught.
  • All companies need to ensure that there policies and practices surrounding the handling of price sensitive information and trading in securities of the company are reviewed regularly and reinforced throughout employees of the company.
  • Refer to ASIC's Consultation Paper 128 for best practice principles if you have concerns regarding the manner in which price sensitive information is being handled within your company.

ASIC's report into market supervision

Just prior to the first anniversary of ASIC assuming market supervision from the ASX, ASIC released its report into market supervision for the first half of 2011. The report's results showed that:

  • The number of matters referred to ASIC's Deterrence Team has doubled from the first 5 months of supervision, with 35 referrals during the last 6 months;
  • Of the 35 referrals, half of these were for insider trading; and
  • ASIC has worked towards reduction of the time taken to commence investigations with 21 of the 52 matters referred to its Deterrence Team during the first 11 months of supervision being within 30 days of detection.

Credit for this increase in referrals is attributed to new the employment of ASIC's own SMARTS technology system.

Through these monitoring activities, ASIC has observed an increase in referrals in relation to the potential misuse of confidential information by persons engaged to assist in M&A and other corporate transactions, such as investment bankers, law firms and consultancy firms.

Employee prosecution for "proxy solicitation"

Hot on the heels of the ASIC report came the prosecution of an employee of a "proxy solicitation" business owned by Computershare. The employee used confidential information obtained through the course of his job to acquire shares in four different companies immediately prior to each company making significant announcements regarding corporate deals. This was the seventh prosecution for insider trading in the last eighteen months, with four of those prosecutions relating to financial "gatekeepers".

Best practice principles to prevent insider trading

In late 2009, ASIC released Consultation Paper 128 outlining its views with respect to best practice principals that companies could look to adopt for the purposes of controlling the use of confidential information. While ASIC have decided to spread the message on these matters through an educational approach in place of the release of an official Regulatory Guideline, the Consultation Paper still serves as a handy guide as to the types of action that companies can take so as to ensure that the number of people who come into contact with price sensitive information is minimised. It also takes steps to ensure that those who do come into possession of price sensitive information are aware of their obligations in relation to handling and dealing with that information. This Paper should be utilised if you have concerns regarding the manner in which price sensitive information is being handled within your company.

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