Avoiding selective disclosure

Cathie Armour provides some tips on how listed company directors can ensure good compliance with their continuous disclosure obligations at analyst briefings.

Continuous disclosure by listed companies is the bedrock of market integrity. It is essential to two of the Australian Securities and Investments Commission’s (ASIC’s) priorities: fair and efficient markets and confident and informed investors.

Equal and timely access to information by all investors ensures confidence in financial markets. The regime works on the basis that all investors, large and small, will have access to the same information about their investments from the companies they invest in at the same time. This ensures a level playing field.

In recent times, a spotlight has been shone on analyst briefings, namely whether some companies are disclosing material information to analysts before telling the rest of the market.

ASIC recognises analysts, and the work they do, play an important role in helping people make decisions about their investments. ASIC encourages the free flow of information between listed companies, their investors and analysts in a way that contributes to market fairness and efficiency.

But listed companies must take care to ensure analyst briefings are conducted in compliance with the companies’ continuous disclosure obligations and the prohibition on insider trading.

With the right policies and procedures in place, listed companies can minimise the risk of analysts receiving, and potentially acting on, inside information. ASIC Regulatory Guide 62 Better disclosure for investors sets out steps a listed company can adopt to ensure the widest audience of investors have access to material information about the company.

Directors are encouraged to adopt the measures suggested in Regulatory Guide 62 if they are appropriate to the company’s needs and circumstances. Directors should be aware of the procedures and policies that operate within a company to practically address the risk of selective disclosure and be comfortable that there is a procedure for identifying instances of selective disclosure and ensuring immediate market disclosure of the relevant information.

Steps to ensure good compliance:

• Establish policies and procedures for better disclosure:
  • Nominate a senior officer to have responsibility for ensuring continuous disclosure obligations are met.
  • Minimise the number of staff authorised to speak on your company’s behalf.
• Use current technology to give investors better access to your information:
  • Immediately release price-sensitive information on the stock exchange.
  • Consider giving investors access to information by posting it on your company website.
• Implement best practice policies for briefing analysts:
  • Give advance notification of group briefings and make the event widely accessible.
  • Have a procedure for reviewing briefings and if inside information has been inadvertently released, disclose the information immediately to the stock exchange.
• Only discuss information that has been publicly released.
  • If a question can only be answered by disclosing price-sensitive information, decline to answer or take it on notice. Then announce the information through the Australian Securities Exchange (ASX) before responding.
  • Have policies for making briefing presentations, speaking notes and speeches available to the public in a timely fashion.

Spot checks

Over the coming weeks, ASIC will raise awareness of the risks of selective disclosure from analyst briefings and we will remind companies and analysts of their obligations.

ASIC will conduct spot checks on selected listed companies across a range of sectors so we can hear how companies brief analysts and understand these companies’ procedures and protocols.

If we discover issues during this process, we want to engage and fix the problems before market integrity is compromised and before investors and other market participants lose money. If there are flagrant breaches, we will take stronger action.

We are also engaging the Australasian Investor Relations Association (AIRA) and the Australian Financial Markets Association to encourage their members to adopt best practice in this area.

Our message is this: ASIC is serious about market integrity. We want to raise standards to ensure markets operate fairly and that all investors can make confident and informed decisions.

For more information, see Best Practice Investor Relations: Guidelines for Australasian Listed Entities, released by the AIRA, and ASX Guidance Note: Continuous Disclosure.