CAMAC financial markets reform push

LegalTalk - August 2009

Significant legal reforms are required to protect against potentially abusive trading by directors in their company's shares and damaging rumours being spread through financial markets, according to the Federal Government's independent adviser on company and financial markets law.

In its report Aspects of market integrity (June 2009), the Corporations and Markets Advisory Committee (CAMAC) recommended legislative change in two key areas - dealing by directors in shares in their company and rumour mongering - as well as for ASX to encourage greater transparency when companies brief research analysts on, for example, their financial performance.

Released on 30 July 2009, CAMAC's proposals include:
  • Encouraging the practice of trading 'blackout' periods by introducing requirements into the ASX Listing Rules and possibly legislation
  • Extending disclosure of share trading to senior executives (not just directors)
  • Removing insider trading protections for margin lenders, but excepting trading under non-discretionary trading plans from those restrictions
  • Requiring companies to disclose in annual reports any shares held by officers that are subject to security arrangements
  • Requiring market participants to have guidelines on 'rumourtrage' - including reporting obligations - and allowing ASIC to ban any person who contravenes those guidelines
  • The ASX Corporate Governance Council encouraging analyst briefings to become more accessible and for companies to restrict them during times of market sensitivity.
While encouraging industry regulators to develop further guidance on 'rumourtrage', CAMAC acknowledged the challenge presented when trying to prove a person had spread false rumours about a company intentionally.

While CAMAC's proposals do not represent effective law, clients need to be mindful of their effects, especially if the proposals are adopted by the Government. Clients also may want to consider the influence such a report could have on the way that current laws are enforced and what the report establishes as 'best practice' in the eyes of regulators and their own stakeholders.

An opportunity to comment on any legislative enactment of the proposals would be welcome. For example, if the inside information exception is removed, investment lenders will need to re-consider how to protect themselves against becoming an insider in a default scenario. For example, could a defaulting 'insider' inhibit a lender's ability to sell their shares by deliberately telling the lender or its staff inside information about the company?Company secretaries may wish to consider what liabilities could be associated with approving - or denying - a particular director's request to trade at a given time or in a particular manner, as well as how their current governance practices could be seen by shareholders and other stakeholders in light of the report.

Research houses can take some comfort from CAMAC's recognition of briefings as "a useful and probably necessary supplement" to formal market disclosures and its view that there is no need for further legislative intervention.

For those interested in offshore comparisons, the report provides useful guidance on overseas regulation and approaches in these areas, including those adopted in the UK, USA and Canada.

While the report covers three very different areas of company law, it will no doubt form a cornerstone for future debate in Australia on directors' share trading, rumourtrage and analyst briefings and deserves a closer look.